Hertz's Post-Earnings Slump: Is This Bill Ackman's Best Contrarian Opportunity?

The Hertz Corporation’s first-quarter 2025 earnings report sent its stock tumbling 3.6% in after-hours trading, with revenue missing estimates by $190 million and an adjusted loss widening to $1.12 per share. Yet, beneath the headline numbers lies a critical question: Is this stumble a fleeting setback or a sign of deeper trouble for Bill Ackman’s Pershing Square-backed turnaround thesis? For contrarian investors, the answer hinges on three pivotal factors: the tailwinds from tariff-driven fleet valuation, the peril of $12.5 billion in debt, and whether Hertz’s operational improvements can outpace its execution risks.

Tailwinds in the Fleet: How Newer Cars Could Validate Ackman’s EBITDA Multiple

Ackman’s bullish thesis hinges on Hertz achieving an EBITDA multiple expansion, with a target of $30 by 2029. The first-quarter results provide a glimpse of how this could unfold. While revenue fell 13% year-over-year due to an 8% fleet reduction, management emphasized a strategic pivot: shrinking the fleet to prioritize newer, higher-value vehicles. Over 70% of Hertz’s U.S. fleet is now 12 months old or newer, a stark contrast to its aging fleet just two years ago.

This modernization has already reduced vehicle depreciation by 45% year-over-year, and Hertz aims to cut depreciation per unit (DPU) to below $300 in Q2 2025—a milestone it now expects to hit early. With used-car residual values rising amid global tariffs on imports and supply-chain bottlenecks, Hertz’s newer fleet stands to benefit disproportionately. Higher residual values mean lower DPU, fatter margins, and a faster path to EBITDA positivity.

The Debt Sword of Damocles and the Short Squeeze Catalyst

Hertz’s $12.5 billion debt load looms large, with nearly $3 billion maturing in 2026. Yet, management has extended $1.7 billion in credit facilities to 2028, buying time to stabilize cash flows. The real risk lies in whether the company can hit its Q3 2025 EBITDA breakeven target. If it does, the debt burden becomes manageable; if not, liquidity concerns could resurface.

Meanwhile, short sellers have piled in, with over 25% of shares sold short as of May 2025. This creates a classic short-squeeze setup: any positive catalyst—like an EBITDA beat or a strategic fleet sale—could trigger a violent rally. Ackman’s Pershing Square owns ~10% of Hertz, giving him both influence and skin in the game. A coordinated buyback or asset sale (e.g., monetizing its Firefly car-sharing unit) could amplify this dynamic.

Q1 Miss: Stumble or Structural Flaw?

The revenue shortfall stemmed from intentional fleet reductions, not collapsing demand. Leisure bookings grew year-over-year, while corporate and international travel lagged—likely temporary issues as global business travel normalizes post-pandemic. Crucially, Hertz’s direct operating expenses improved by $92 million, and its liquidity remains robust at $1.2 billion.

The real test is whether the company can sustain these improvements. If Q2 DPU hits sub-$300 and EBITDA turns positive by Q3, the bull case holds. If not, Ackman’s narrative crumbles. For now, the path forward is clear: tight fleet management, higher residual values, and cost discipline.

The Contrarian Play: High-Risk, High-Reward

Hertz’s stock trades at $6.94—a 35% discount to Ackman’s $10+ price target from late 2024—but its volatility offers a compelling asymmetry. Buy-the-dip investors should focus on two catalysts:
1. Q2 2025 results (expected July 2025): A DPU under $300 and EBITDA breakeven would validate the turnaround.
2. Residual value trends: Monitor used-car auction prices; rising MMR (Market to Run) indices could supercharge Hertz’s margins.

The risks are stark: debt defaults, execution failures, or a sudden drop in residual values. But for investors willing to bet on Ackman’s track record and macro tailwinds like tariffs boosting used-car values, HTZ at $6.94 is a contrarian’s dream.

Action Item: Buy Hertz at current levels with a $5 stop-loss, targeting $10 by year-end 2025. The reward-to-risk ratio favors bold players who believe in Ackman’s influence and the fleet’s valuation tailwinds.

In the end, Hertz’s stumble is a test of conviction. For the right investor, it could be the moment to seize Ackman’s “best contrarian opportunity” before the market recognizes the fleet’s true value.