Shares of Hertz Global Holdings Inc. (NYSE: HTZ ) rose this week after the company filed for bankruptcy as investors made bets on the car rental company’s long-term profitability. HTZ shares in the car rental company were trading as high as $3.70 on Monday from a low of $2.50.
Is Hertz Stock HTZ A Buy?
Many investors are asking if they should buy Hertz stock (HTZ). The short and quick answer is NO. Billionaire investor Carl Icahn was Hertz’s largest shareholder when the Estero, Florida-based company filed for court protection on May 22. According to the filing, he sold 55.3 million shares on May 26, a loss of nearly $1.6 billion. I can’t stress this enough HTZ is not a good trade at this time. If Icahn is willing to lose a BILLION, then you most likely shouldn’t bet on it.
Why is Hertz Stock HTZ Up?
Hertz is also expected to benefit from the prices of used cars at auction, which has recovered from a slump in mid-April. Market researcher JD Power said Thursday that prices were higher than forecast the previous week, but not as strong as expected.
Apart from these positive aspects, Hertz shareholders continue to take significant risks. The company’s debt has yet to be repaid, so shareholders will not get anything from the company that applied for Chapter 11, as it did a few weeks ago unless they get it. In the report, he said the recovery in used car prices was a positive sign for the car rental industry, but not necessarily a good thing for shareholders.
Investors are also questioning the long-term viability of Hertz Global Holdings Inc.’s debt, Adam Jonas, an auto analyst at Morgan Stanley said. Secured securities backed by the value of their vehicles now have a higher chance of recovery.
Still, there is a risk that shareholders will not be able to reap the benefits of bankruptcy, Jonas wrote. Still, the main argument that stocks can stay but are traded as distressed stocks is unlikely to be fully recapitalized.
Hamzah Mazari, an analyst at Jefferies, also said in an e-mail that while a resolution could come before shareholders this month, it was unlikely. The options markets suggest there is a high probability that the stock will trade back to $0.50 or below.