Hertz withdraws profit guidance as recalls put brakes on rentals
US CAR industry recalls have hit rental company Hertz hard and it has withdrawn its profit guidance for the year, prompting at least two brokerages to downgrade its stock.
Hertz announced yesterday that it expected 2014 results to be “well below” its previous guidance given the massive auto recalls, higher operating expenses in the US fleet and soft demand in its construction equipment rental business.
“The filing contained a bundle of bad news that we believe will be the point of capitulation for many of the frustrated bulls who have been extremely patient with Hertz until this point,” JP Morgan Securities analyst Kevin Milota wrote in a note.
The brokerage cut its rating on the company’s stock to “neutral” from “overweight” and its target price by $7 to $25.
Deutsche Bank downgraded the stock to “hold” from “buy”.
The US car industry – and particularly General Motors (GM) – has recalled more than 44m vehicles this year. The recalls have forced rental chains to pull cars from their fleets for repairs, which has required shuffling vehicles and led to tight inventory in some places.
Nearly 28 per cent of Hertz’s US fleet comes from GM, which has recalled about 25.7m cars in the country so far this year.