CEO says Hertz stock is undervalued - but is it really?

Hertz HTZ shares have soared over 50% in recent sessions after the company reported its fiscal Q2 earnings that came in substantially above Wall Street estimates.

More importantly, on the earnings call, CEO Gil West said the company’s share price didn’t align with its improving operational metrics.

He emphasizing that HTZ shares had crashed to one-third of their price just 90 days earlier, despite improving direct operating costs and a stabilized balance sheet.

But does that really warrant loading up on Hertz at current levels? Let’s find out!

Excessive debt could hurt Hertz stock

While Gil West highlighted $984 million in available liquidity, he omitted the huge leverage sitting above the equity.

Hertz carries roughly $14 billion to $15 billion in total debt, predominantly tied to its Asset-Backed Securities (ABS) fleet financing facilities.

When enterprise value (EV) is overwhelmingly dominated by debt, a low market cap doesn't really mean the stock is “cheap”.

It reflects market anxiety that equity holders sit at the bottom of a massive capital stack.

HTZ shares remain unattractive because high prevailing interest rates mean refinancing rolling debt facilities continues to eat directly into the company’s corporate cash flow, keeping net interest expenses uncomfortably high.

EV fleet depreciation and used-car market weakness

Investors should also note that a core driver of Hertz’s previous multi-quarter losses was its botched aggressive pivot into electric vehicles and the subsequent collapse in used-car residual values.

While management claims the EV liquidations are largely behind them, HTZ remains exposed to the broader used-car market.

If wholesale vehicle prices drop further (via Manheim Index trends), Depreciation Per Unit (DPU) per month will spike again, quickly wiping out thin operational EBITDA margins.

Owning Hertz shares is risky because re-fleeting with traditional internal combustion engine (ICE) vehicles to fix unit economics requires significant ongoing capital expenditures, capping free cash flow generation.

Hertz is yet to return to profitability

Finally, despite top-line momentum, Hertz still printed an adjusted net loss of $0.11 a share for its fiscal Q2.

Returning to true GAAP net profitability relies significantly on peak summer travel demand in the current quarter, which is seasonally temporary.

Meanwhile, direct operating costs and vehicle maintenance overhead remain structurally elevated relative to pre-2024 baselines – meaning operational execution must remain “flawless” just to stay cash-flow positive.

This makes HTZ stock even less compelling to chase following recent momentum.

Wall Street’s view on HTZ shares

What’s also worth mentioning is that Wall Street also currently rates Hertz Global at “underweight” – especially amidst rising competition.

Rivals like Avis Budget Group run tighter fleet management frameworks with higher operational efficiency, leaving HTZ with less margin for error in an industry defined by commoditized pricing.

And it’s not like it pays a dividend to incentivize ownership despite the aforementioned risks.