This story has been corrected to clarify details about the equipment rental division spinoff.
NEW YORK (TheStreet) -- Hertz (HTZ) is up today on the news that it will be spinning off its equipment rental division in a move that will raise about $2.5 billion in capital for the car rental company. The news has acted as a buffer against the company's disappointing Q4 earnings. Hertz stock was up 1% to 27.44 on Tuesday.
The spinoff is expected to be completed in early 2015 though it has been discussed by the company since early last year. Hertz plans to use the money to pay down debt and finance a $1 billion share buyback program that was authorized earlier this year.
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Hertz, Dollar, Thrifty and Firefly brands will all survive the spinoff as the company refocuses on its car rental operations.
"The Hertz Corporation today announced that its board of directors has approved plans to separate into two independent, publicly traded companies," Hertz said, in its press release. "The two companies will be 'Hertz,' comprised of the Hertz, Dollar, Thrifty and Firefly rental car businesses as well as Donlen, a provider of fleet leasing and management services, and 'HERC,' the Hertz Equipment Rental Corporation. The separation is planned to be in the form of a tax-free spin-off to Hertz shareholders, and the Company has received a Private Letter Ruling from the Internal Revenue Service that allows Hertz to separate the businesses in a tax-efficient manner. Hertz expects the separation of HERC to close by early 2015."
TheStreet Ratings team rates HERTZ GLOBAL HOLDINGS INC as a "buy" with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:
"We rate HERTZ GLOBAL HOLDINGS INC (HTZ) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, good cash flow from operations, expanding profit margins and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 4.8%. Since the same quarter one year prior, revenues rose by 22.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Net operating cash flow has increased to $1,393.00 million or 43.38% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 10.71%.
- HERTZ GLOBAL HOLDINGS INC's earnings per share declined by 14.5% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, HERTZ GLOBAL HOLDINGS INC increased its bottom line by earning $0.54 versus $0.38 in the prior year. This year, the market expects an improvement in earnings ($1.70 versus $0.54).
- The gross profit margin for HERTZ GLOBAL HOLDINGS INC is rather high; currently it is at 53.17%. Regardless of HTZ's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, HTZ's net profit margin of 6.99% is significantly lower than the industry average.
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- You can view the full analysis from the report here: HTZ Ratings Report