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Summary

  • Hertz spins off its conglomerate services.
  • Outcomes of the spin off.
  • Hertz has profitable financials and why now is a good time to invest.

Hertz (NYSE:HTZ) is planning on separating its conglomerate of leasing and renting cars and equipment. According to HTZ this spin-off will "create a stronger growth profile and more competitive position for each company with enhanced management focus, resources and processes that are more directly aligned with each business's unique strategic priorities." This tax-free spin-off forecasted to take effect in Q1 of 2015 will separate HTZ's current services into two publicly traded companies:

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The following diagram illustrates the implications of the spin off:

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Bears:

Tourism is not only important for vehicle rental businesses but also for the nation's residents. The following studies were done by Bureau of Labor Statistics, U.S. Travel Association, Oxford Economics, & UNWO:

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Unfortunately, the United States does not generate as much revenue from tourism relative to other nations around the world. Although HTZ is slightly affected by these numbers, being a global provider helps offset these negative headwinds. United States education and security, however, can benefit more if tourism increases.

Bulls:

Fortunately, American auto-rental companies do not entirely depend on tourism. The industry has actually seen a drastic increase in revenue over the past ten years:

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HTZ being one of the largest providers for this service has benefited tremendously financially from these positive headwinds:

Q4 Financials (Est. Nearest 1/10th & 1/100th)

Revenue in USD billion

Total Operating Expenses in USD billion

Operating Income in USD billion

Net Income in USD billion

Basic EPS in USD

TTM

$11

($4)

$0.64

$0.32

$0.80

2012

$9

($4)

$0.45

$0.24

$0.60

2011

$8

($3)

$0.32

$0.18

$0.40

2010

$8

($3)

($0.01)

($0.05)

($0.10)

2009

$7

($5)

($0.17)

($0.13)

($0.30)

2009-TTM

$4

($1)

$1

$0.50

$1

There is a reason the company has received awards like: Travel & Leisure's 2013 World's Best Awards, Frequent Business Travelers Globe Runner Awards, and Executive Traveler's Leading Edge Awards. Aside from the $4 billion increase in revenue over the past 6 years, HTZ's total assets are almost $3 billion > than its total liabilities. The company's free cash flow has increased by nearly $10 billion since 2008. During this same 6-year period, capital expenditure has reduced by $8 billion and operating cash flow has increased by $1 billion. Even though CEO compensation has increased by 2% since last year, investors have also benefited TTM:

- Stock Return +76%

- Revenue +9%

- ROE +26%

- Net Income > than +35%

Conclusion: When is a good time to buy?

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Looking at %K (15) Stochastic & RSI (14), shares are currently being sold more than bought. However, with share prices hovering around EMA (50) in the middle of BBands © support and resistance bars, I'd say right now is a good time to cash in. Taking advantage of current share price might be better than waiting until the company executes its $1 billion share re-purchase plan.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: 2015: Hertz Narrows Its Moat