Is Hertz a Buy at These Prices?

With shares of Hertz (NYSE:HTZ) trading around $26, is HTZ an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Hertz engages in the car and equipment rental businesses around the world. The company operates in two segments: Car Rental and Equipment Rental. The Car Rental segment rents and leases various car models on an hourly, daily, weekend, weekly, monthly, or multi-month basis. This company operates car rental locations at or near airports, in central business districts, and suburban areas of cities, as well as retail used car sales locations, provides car-sharing services, and fleet leasing and management services worldwide. Hertz also sells and rents earthmoving equipment, material handling equipment, aerial and electrical equipment, air compressors, generators, pumps, small tools, compaction equipment, and construction-related trucks.

Recently, Hertz delivered earnings and revenue figures that beat Wall Street’s expectations. An earnings and revenue  revenue beat are what investors are seeking out of companies that are experiencing high growth, and it seems Hertz is poised to continue growing its healthy business around the world.

T = Technicals on the Stock Chart are Strong

Hertz stock has been steadily rising over the last several years. The stock is now trading near all-time high prices and sees no significant signs of slowing. Analyzing the price trend and its strength can be done using key simple moving averages.

What are the key moving averages? They are the 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Hertz is trading above its rising key averages, which signals neutral to bullish price action in the near-term.

HTZ

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Hertz options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Hertz Options

36.13%

26%

24%

What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts, compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

As of today, there is average demand from call buyers or sellers, and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts, and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates, and what that means for Hertz’s stock.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. In addition, reactions to the last four quarterly earnings announcements can help gauge investor sentiment on Hertz’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Hertz look like, and more importantly, how did the markets like these numbers?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

28.57%

130.77%

-180.30%

17.02%

Revenue Growth (Y-O-Y)

22.00%

24.25%

15.13%

3.45%

Earnings Reaction

-1.75%*

0.45%

1.65%

2.86%

Hertz has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Hertz’s recent earnings announcements.

* As of this writing

P = Excellent Relative Performance Versus Peers and Sector

How has Hertz stock done relative to its peers, Avis Budget Group (NASDAQ:CAR), United Rentals (NYSE:URI), Amerco (NASDAQ:UHAL), and sector?

Hertz

Avis Budget Group

United Rentals

Amerco

Sector

Year-to-Date Return

61.34%

51.82%

18.76%

29.71%

33.18%

Hertz has been a relative performance leader, year-to-date.

Conclusion

Hertz is involved in the vehicle and equipment sale and rental business all around the world. The company recently reported earnings that impressed the markets. The stock is now trading near all-time high prices, and shows no signs of slowing. Over the last four quarters, earnings and revenue figures have been rising, which has generally pleased investors. Relative to its peers and sector, Hertz has been a year-to-date performance leader. Look for Hertz to OUTPERFORM.

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