Hertz's Undervalued Recovery Play Amid Strategic Turnaround

The market’s recent panic over Hertz Global (HTZ) may have created a rare contrarian opportunity. Despite a 19% stock plunge following Q1 2025 earnings—a reaction to short-term headwinds—the company’s underlying progress toward profitability, combined with its disciplined fleet strategy, positions it for a rebound. For investors willing to look past the noise, Hertz’s undervalued shares now present a compelling entry point to capitalize on its turnaround momentum.

The Selloff: A Misplaced Panic?

The 19% post-earnings selloff reflects investor frustration over top-line revenue misses and lingering debt concerns. However, this reaction overlooks the company’s structural improvements. Hertz’s Q1 results revealed a 45% year-over-year reduction in fleet depreciation—a critical metric for its turnaround—thanks to its "Buy Right, Hold Right, Sell Right" strategy. This has slashed depreciation per unit (DPU) to $353/month, with management now forecasting sub-$300 DPU by Q2 2025, months ahead of prior guidance.

Fleet Discipline: The Engine of Recovery
Hertz’s deliberate fleet reduction—trimming capacity by 8% year-over-year to 504,723 vehicles—has been a masterstroke. By prioritizing quality over quantity, the company has boosted utilization to 79% (up 240 bps YoY) and increased the proportion of newer vehicles (12 months old or less) to 70% of its U.S. fleet. This not only lowers maintenance costs but also enhances residual values as older, less efficient cars are sold to retail buyers at premium prices.

The "Sell Right" pillar of its strategy is paying dividends: Q1 marked a record for retail vehicle sales, which command higher margins than wholesale deals. With used-car prices near decade highs, Hertz is poised to benefit further as its newer fleets age into prime selling windows.

The Path to Breakeven—and Beyond
Hertz’s Q3 2025 EBITDA breakeven target remains firmly on track, underpinned by three pillars:
1. Cost Discipline: Direct operating expenses (DOE) fell $92 million YoY, aided by AI-driven efficiency tools and a smaller, optimized fleet.
2. Revenue Resilience: Despite reduced capacity, leisure demand remains strong, and corporate bookings show signs of stabilization.
3. Liquidity Strength: A $1.2 billion liquidity buffer and extended debt maturities (now pushed to 2027–2028) reduce refinancing risks, buying time for the turnaround to solidify.

While the recent $250 million ATM stock offering spooked investors, it’s a pragmatic move to deleverage amid $18.9 billion in debt. The company’s focus on maintaining a 79% utilization rate—balancing profitability with agility—suggests it won’t overextend into a demand slump.

Navigating the Risks
The skeptics are right to worry. Rising tariffs, supply chain hiccups, and a potential economic slowdown could strain margins. Yet Hertz’s proactive risk management—from locking in 2025 model-year vehicles to avoid tariff hikes to prioritizing retail sales—reduces exposure to these threats. Meanwhile, its net promoter scores rising 11 points YoY signal customer loyalty gains that could stabilize revenue streams.

Why Now Is the Time to Buy
At $5.60 per share—a near 52-week low—HTZ is pricing in worst-case scenarios. A $1 billion EBITDA target by 2027 (up from Q1’s $325M loss) and a Q3 breakeven could catalyze a valuation reset. For contrarians, the current dip is a chance to buy a turnaround story at a discount, especially as residual value tailwinds and fleet efficiency gains gather steam.

Call to Action
The market’s Q1 reaction was myopic. Hertz’s progress on DPU, fleet quality, and liquidity are the building blocks of a sustainable recovery. With shares down 60% from their 2024 highs, the risk-reward here tilts sharply to the upside. Investors who ignore the noise and focus on execution can position themselves for a rebound when Hertz delivers on its Q3 breakeven—a milestone that could finally silence the skeptics.

The selloff isn’t a death knell—it’s a buying signal for those ready to bet on Hertz’s long-overdue comeback.