The rental car company Hertz exited bankruptcy in June.
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Hertz Global Holdings
has wasted no time in unveiling a large stock repurchase program after reaching a deal last week with the majority holder of its $1.5 billion of preferred stock to enable a big buyback.
In Monday morning trading, Hertz shares were up 4%, to $24.83.
Barron’s reported Wednesday that the company’s tender offer for its preferred stock signaled that Hertz likely was preparing to unveil a large buyback that could total as much as $3 billion.
Chris Warren, a distressed debt and special situations analyst at Odeon Capital Group, said at that time that “all signs” pointed to Hertz “teeing up a buyback.” He is bullish on Hertz shares and thinks the stock is worth more than $30 a share
The repurchase program indicates that Hertz’s management and largest shareholders also view the stock as undervalued after declining in the wake of the company’s $1.3 billion equity offering earlier in November. That deal was priced at $29 and Hertz stock had traded in the mid-$30s before the offering.
Hertz is offering preferred holders a 25% premium for their securities that were issued as part of the company’s reemergence from bankruptcy in June.
Apollo Global Management
(APO), whose funds own a majority of the preferred, has agreed to tender its shares and to amendment to the preferred terms to enable greater buybacks.
The terms of the preferred had restricted Hertz’s ability to do stock buybacks. Hertz got permission from preferred holders for $500 million of buybacks in conjunction with the equity deal. The company bought back $300 million of stock in the equity offering and had $200 million of remaining authorization.
After the tender offer is completed in December and the buyback amendment put in place, Hertz will have authority to buy back stock beyond the $200 million current limit.
Hertz trades at a discount to rival
Avis Budget Group
(CAR) and has a great balance sheet that likely will be virtually free of net debt at year-end after the preferred tender offer. This calculation excludes asset-backed securities.
Hertz is now valued at about 5.5 times the company’s projection of 2021 earnings before interest, taxes, depreciation, and amortization (Ebitda) of around $2 billion. Avis is valued at closer to eight times projected 2021 Ebitda and has more debt than Hertz.
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