Bill Ackman's Hertz (HTZ) Investment: Analysis of a Deep Value Turnaround Bet

Bill Ackman's Hertz Investment Thesis

• 💡 Billionaire investor Bill Ackman has disclosed a nearly 20% stake in Hertz (HTZ), believing in potential for several hundred percent upside.
• 🎯 His thesis includes the possibility of a dramatic short squeeze due to a high percentage of shares held by institutional investors and his derivatives.
• 🔑 Ackman sees Hertz operating in an oligopoly market, suggesting potential for significant margin improvement and attractive profitability.
• 📈 A potential rise in used car prices could significantly boost Hertz's auto assets, with a 10% increase equating to a $1.2 billion gain relative to its current market cap.

Hertz Business Overview & Management Strategy

• 🌍 Hertz is described as a global leader in car rentals, operating in 160 countries with over 11,000 locations and a fleet of 560,000 vehicles.
• 🚗 The company's portfolio includes brands like Dollar Car Rental, Thrifty Car Rental, Ace, Flexi Car, and Firefly, with Hertz being the primary focus.
• ✅ Management's strategy aims to increase revenue per unit per month (targeting over $1,500) and manage expenses, including depreciation and operating costs.

Ackman's $30 Price Target Calculation

• 📊 Ackman projects a $30 share price target for Hertz by 2029, implying a 5x upside from its current price.
• 💰 This target is based on management achieving their goals, leading to an adjusted EBITDA of around $2 billion.
• 🧮 Applying a 7.5x multiple to this EBITDA, then subtracting non-vehicle debt ($5 billion), results in a $10 billion market cap, which translates to $30 per share.

Challenges and Risks for Hertz

• ⚠️ Hertz exhibits weak to terrible fundamentals, including declining revenue, flat volume, and a loss of market share, indicating it's a "price taker" in a commodity-like business.
• 📉 Despite declining revenue, the company had to expand its fleet and saw a decrease in vehicle utilization, leading to significant losses and nearly $2 billion in cash burn in the past year.
• 🚨 The company faces substantial debt maturities, with billions due between 2026 and 2029, posing a significant "blowup risk" if economic conditions or tourism decline.

Speaker's Investment Checklist & Conclusion

• ❌ The speaker evaluates Hertz against a personal investment checklist, which includes aligned management, compelling valuation, growth potential, and blowup risk.
• 💡 While acknowledging Ackman's "aligned owner" status, the speaker finds the valuation not compelling given the tough turnaround, and the growth potential is low due to market share loss.
• 🚫 Ultimately, Hertz fails the speaker's checklist due to poor operations, significant debt, and the high risk of the turnaround not succeeding, making it "too hard" an investment.