For our latest recommendation, we revisit one of the world's most prominent technology companies, Mi...
New CEO to Drive Hertz
12/05/2014 8:00 am EST
Our latest featured recommendation is one of the largest rental car companies in the US, with 11,500 locations in 145 countries, the company is a big player, notes Ian Wyatt, editor of Million Dollar Portfolio.
Hertz Global Holdings (HTZ) rents cars under the Hertz, Dollar, and Thrifty brand names.
It plans to spinoff its equipment rental business in the coming months. Shareholders will receive shares of Hertz Equipment Rental as part of the spinoff. Additionally, Hertz will get net proceeds of $2.5 billion.
The company plans to use those funds to reduce debt and fund a $1 billion share buyback program. This spinoff should create value for existing Hertz shareholders.
Hertz has been having financial reporting problems. In the wake of this discovery, the company's CFO resigned. In September, long-time CEO Mark Frissora stepped down after pressure from activist investors, including Carl Icahn.
News of the company's financial reporting problems is clearly weighing on Hertz shares. The stock has fallen 28% over the last three months as a result.
Meanwhile, Hertz has just announced that John Tague would be assuming the role of President and CEO effectively immediately. Tague is a former President and COO of United Airlines.
Activist investor Carl Icahn was directly involved in the hiring of Tague and the appointment is being well-received by the market.
With a new CEO in place, Hertz should begin executing on its turnaround. That means cleaning up its financial reports and gaining the trust of investors.
Having activist investors involved in Hertz will help the company become more shareholder-friendly. It was reported that Carl Icahn owns 8.5% and Jana Partners owns 7% of Hertz.
Like many turnarounds, there are several unknown risks with Hertz. However, it seems that the negative news is priced into the stock. As this turnaround unfolds, Hertz should deliver solid gains to investors.
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