Hertz's Q1 Miss: Is the Stock a Contrarian Buy Amid Mixed Signals?

Hertz Global Holdings (HTZ) reported a mixed Q1 2025 quarter, missing revenue and earnings estimates while highlighting progress on its turnaround roadmap. The stock dipped post-earnings, but beneath the headline miss lies a compelling case for contrarian investors: a disciplined fleet strategy, accelerating path to positive EBITDA, and a valuation gap that suggests the market is overlooking Hertz’s structural upside. Here’s why the dip could be a buying opportunity.

The Q1 Miss: Revenue Pressure vs. Operational Gains

Hertz’s Q1 revenue fell 13% year-over-year to $1.81 billion, missing estimates by 10%, while its adjusted EBITDA narrowed to a $325 million loss—still below breakeven. The miss stemmed from reduced fleet capacity (-8% YoY) and softer demand in corporate and inbound travel. Leisure bookings held up, but Easter timing and a shift toward older, cheaper fleet segments pressured revenue per day (RPD).

Yet the report wasn’t all bad. Hertz’s fleet optimization strategy delivered outsized gains:
- Depreciation per unit (DPU) dropped 40% YoY to $353, with management confident it will hit sub-$300 by Q2—three months ahead of its original 2025 target.
- Retail sales surged, with Hertz Car Sales now handling record volumes, capitalizing on rising used-vehicle prices.
- Direct operating expenses (DOE) improved $92 million YoY, aided by AI-driven maintenance systems that cut costs and boosted fleet efficiency.

These metrics signal Hertz is executing its “Back-to-Basics” plan—reducing costs, maximizing residual values, and preparing for its Q3 2025 EBITDA breakeven goal.

Why the Bulls Are Right: Residual Value Upside and EBITDA Momentum

The key to Hertz’s valuation lies in its fleet discipline and macro resilience:
1. Fleet Freshness: Over 70% of its U.S. rental fleet is now 12 months old or newer, reducing maintenance costs and boosting customer satisfaction (Net Promoter Scores +11 YoY).
2. Tariff-Proof Strategy: Proactive 2025-model purchases, made before recent tariff hikes, lock in DPU below $300—a critical lever for EBITDA.
3. Used Car Market Dynamics: Rising residual values (fleet fair market value at 105% of book value) support retail sales gains, turning older vehicles into profit engines.

Management projects Q3 2025 positive EBITDA via tighter fleet controls, loyalty program growth (+11% enrollments), and off-airport demand diversification. Even with near-term revenue headwinds, the path to profitability is clearer than ever.

Valuation Divergence: GuruFocus Sees 180% Upside, Zacks Says “Hold”—Who’s Right?

Analyst ratings are split, creating a buying opportunity for those willing to look past short-term noise:
- GuruFocus: Assigns a GF Value of $19.51, implying 180% upside from current levels. This assumes Hertz’s fleet strategy and EBITDA turnaround justify a valuation re-rating.
- Zacks: Rates HTZ a #3 (Hold), citing the Q1 miss and weak industry sentiment (Transportation Services rank in bottom 44% of sectors).

The disconnect hinges on time horizon. Short-term, Hertz’s revenue volatility and debt load ($6+ billion) are risks. Long-term, its fleet and EBITDA progress align with a $30+ share price target by 2029, as projected by Bill Ackman, who owns a 20% stake.

Ackman’s Stake and YTD Outperformance: A Contrarian Signal

Ackman’s Pershing Square has been a vocal backer, acquiring nearly 20% of Hertz and partnering with the company on AI inspections and fleet utilization. His $30-per-share 2029 target isn’t arbitrary:
- Hertz’s $12 billion fleet value and rising residual values could fuel profit expansion.
- The stock has doubled YTD amid macro uncertainty, suggesting investors already see Ackman’s vision.

Even with near-term headwinds, the stock’s $8.24 price (as of May 12) is far below GuruFocus’s $19.51 target and Ackman’s longer-term thesis.

Conclusion: Buy the Dip on Hertz’s Turnaround

Hertz’s Q1 miss is a near-term speed bump, not a derailment. Its fleet strategy has cut costs, its path to EBITDA breakeven is on track, and macro risks like tariffs and inflation are being mitigated. With Ackman’s stake and retail sales gains as catalysts, the stock’s valuation gap suggests it’s primed to reward contrarians who see beyond the Q1 headline.

Action: Consider buying HTZ on dips below $8.50, with a target of $15+ by year-end. The Q3 EBITDA milestone and residual value trends will be key catalysts.

The question isn’t whether Hertz faces challenges—it’s whether the market underestimates its ability to turn those challenges into a structural win. For investors with a 12–18 month horizon, the answer is clear.