Hertz’s Turnaround Gains Momentum: A Clear Path to Profitability and Undervalued Opportunity Ahead

The automotive rental giant Hertz (HTZ) stands at a pivotal juncture. After years of restructuring and strategic overhauls, the company is on track to achieve a critical milestone: positive Adjusted Corporate EBITDA by Q3 2025. This transformation, driven by disciplined fleet management, cost-cutting, and extended debt maturities, positions Hertz as a compelling investment opportunity. With its operational turnaround validated by tangible progress, the stock is primed to reward long-term investors who act before the Q3 milestone is confirmed.

Fleet Optimization: The Engine of Profitability

At the core of Hertz’s revival is its fleet rotation strategy, which has slashed vehicle depreciation—a major drag on profitability. Over 70% of its core U.S. rental fleet is now under 12 months old, with depreciation per unit (DPU) falling 45% year-over-year in Q1 2025. The company aims to push DPU below $300 by Q2 2025, a threshold that would unlock significantly higher margins. This modern fleet not only attracts customers but also improves residual values, as newer cars retain value better.

The fleet’s rejuvenation is underscored by a 240-basis-point increase in utilization in Q1 2025, reflecting stronger demand. With fewer write-offs for aging vehicles and higher fleet efficiency, Hertz is finally reaping the benefits of its strategic bets.

Cost Discipline: Squeezing Out Waste

While fleet renewal is foundational, Hertz’s cost-cutting efforts have been equally vital. Direct operating expenses (DOE) fell by $92 million year-over-year in Q1 2025, driven by automation, streamlined operations, and optimized fleet use. The goal? To reduce DOE per transaction day to the “low $30s”—a target that, if achieved, would align Hertz’s cost structure with industry peers.

This focus on cost control has already borne fruit. Q1’s adjusted EBITDA improved 43% year-over-year, narrowing losses to $325 million from $567 million. With further cost savings embedded in its “Back-to-Basics Roadmap,” Hertz is on course to eliminate losses entirely by mid-2025.

Revenue Growth: Leveraging Retail Sales and Customer Loyalty

Hertz’s revenue strategy hinges on two pillars: maximizing residual values through retail sales and boosting customer retention. Its Hertz Car Sales division achieved a record quarter in Q1 2025, selling more vehicles at higher margins than ever before. This not only reduces reliance on wholesale auctions but also improves cash flow.

Meanwhile, customer loyalty initiatives are paying off. Enrollments in Hertz’s loyalty program rose 18% year-over-year in Q4 2024, signaling stronger repeat business. Combined with rising revenue per unit (RPU) as demand recovers, Hertz is building a more sustainable revenue base.

Balance Sheet Strength: De-Risking the Future

Hertz’s liquidity and debt management further de-risk its path to profitability. With $1.2 billion in liquidity as of March 2025, the company has ample cash buffers. Crucially, it extended $1.7 billion of First Lien credit facilities to 2028, pushing debt maturities further into the future and reducing refinancing risks.

This financial flexibility, combined with operational improvements, has already stabilized its credit ratings. Analysts now view Hertz’s balance sheet as increasingly robust, a far cry from its near-bankruptcy days in 2020.

Valuation: An Undervalued Play on Turnaround Confirmation

Despite its progress, Hertz’s stock trades at a discount to peers, reflecting lingering skepticism about its ability to sustain profitability. At current prices, the market is pricing in risks like rising insurance costs and litigation—valid concerns, but ones that are outweighed by the company’s momentum.

A successful Q3 EBITDA turnaround would likely trigger a re-rating, as the market begins to value Hertz as a sustainable, high-margin player. With a forward P/E ratio of just 8x (versus industry averages above 15x), the stock offers asymmetric upside for investors willing to look past near-term headwinds.

Risks, but the Reward Outweighs Them

Hertz’s path is not without obstacles. Higher insurance costs, seasonal Q1 volatility, and ongoing litigation (notably with Tesla over Supercharger access) could pressure margins. However, these risks are either manageable or already factored into the stock price. The operational progress—from DPU declines to retail sales growth—is too substantial to dismiss.

Conclusion: Act Before the Catalyst

Hertz’s Q3 EBITDA positivity is more than a milestone—it’s a signal of structural recovery. With its fleet modernized, costs under control, and balance sheet stabilized, the company is set to deliver sustained profitability. For investors, the window to buy at a discounted valuation is narrowing. Once Q3 results confirm the turnaround, the stock could surge as the market finally embraces Hertz’s transformation.

The time to act is now.