Hertz Shares Surge as Bill Ackman Takes Major Stake
Shares of Hertz Global Holdings (NASDAQ: HTZ) soared last month after billionaire Bill Ackman, head of Pershing Square Capital Management, announced a 19.8% stake in the car rental company. This move took place against the backdrop of Hertz’s history as a sluggish performer in the Stock market.
Ackman detailed his reasoning in a post on X, where he expressed his interest in Hertz’s highly leveraged automobile asset portfolio. He believes the company is undervalued due to past missteps, including an overspend on Teslas.
He noted that improved competitive behavior among the industry’s three dominant players, the resolution of the Tesla issue, a new management team, and favorable capital structure could significantly enhance returns on investment.
Following Ackman’s announcement, the Stock rose sharply, ending April up 73%, according to S&P Global Market Intelligence. This surge was particularly pronounced right after news of Ackman’s stake was made public.
As illustrated in the chart below, the spike in stock price closely followed Ackman’s disclosure.
^SPX data by YCharts.
The stock pulled back at the end of the month, potentially signaling it was overbought in reaction to Ackman’s news.
Assessing Ackman’s Perspective on Hertz
Historically, the car rental sector has posed challenges for investors, with Hertz being a consistent underperformer. The company entered bankruptcy during the pandemic, and its return to the public sphere has been shaky, with its market capitalization hovering around $1 billion before the Ackman announcement. Currently, Hertz is not profitable, although analysts predict a modest profit by 2026.
Investing in a car rental Stock amid indications that the U.S. economy may be heading into recession carries risks. The car rental industry is highly cyclical and sensitive to both leisure and business travel—expenses that are often cut first in economic downturns.
Ackman also posited that Hertz’s fleet of 500,000 vehicles provides a competitive advantage as auto tariffs drive up used-car prices. This rationale holds true only if Hertz isn’t overly burdened by the frequent need to replace these vehicles, a reality it faces.
Additionally, tariffs may actually pose challenges for Hertz, potentially resulting in higher depreciation costs as the company pays more for used vehicles.
Image source: Getty Images.
Future Outlook for Hertz
Indicators from airlines and Airbnb suggest a slowdown in travel demand, which may impact a company already struggling with profitability and growth.
Hertz is scheduled to report its first-quarter earnings on May 12, an event likely to cause stock volatility. Should the results disappoint, the Stock could see significant declines.
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Jeremy Bowman holds positions in Airbnb. The Motley Fool is invested in and endorses Airbnb and Tesla. For more details, please see our disclosure policy.
The views presented in this article reflect those of the author and do not necessarily represent those of Nasdaq, Inc.
