A couple of weeks ago, Carol Vinzant noted that Hertz (NYSE: HTZ) had stopped its practice of gouging customers for gas fill-ups. Rather than charge exorbitant prices for gas, the renter instead chose the market rate, merely tacking on a $7 surcharge for the cost of paying somebody to fill up. While Hertz claimed that this was a voluntary decision, it coincided suspiciously with the Maryland Attorney General's threat to sue large rental firms for their exorbitant gas charges.
Whether Hertz is trying to find ways to offset their gas losses or is just trying to generate a little extra income in what are becoming hard times for the rental industry, their latest revenue stream is pretty smart: they're renting out ad space in their rental fleet. In addition to printing ads on ticket jackets and hang tags, the company is planning to utilize printed trunk liners and will also be offering free samples to customers. This, of course, follows the lead set by some airlines, which have begun plastering ads atop everything that doesn't move.
Hertz is hoping that its advertising strategy will help offset losses that it has incurred as high gas prices have caused customers to cancel trips, severely undercutting the rental industry. These days, anything that helps keep prices down and service up seems like a burst of genius!
MOST NOTEWORTHY: Progressive, Netflix and Public Service Enterprise Group were today's noteworthy upgrades:
Wachovia upgraded Progressive (NYSE: PGR) to Market Perform from Underperform based on modest signs of improvement in underwriting trends.
Lehman upgraded Netflix (NASDAQ: NFLX) to Overweight from Equal Weight based on strong core trends and a potential announcement of digital service partners into its May 28 investor day.
Credit Suisse upgraded Public Service Enterprise Group (NYSE: PEG) to Outperform from Neutral based on earnings growth through utility investment, valuation, upside from U.S. CO2 policy.
OTHER UPGRADES:
Precision Drilling (NYSE: PDS) was raised to Outperform from Sector Perform at RBC Capital.
Hertz Global (NYSE: HTZ) was upgraded at Soleil to Buy from Hold.
Calyon upgraded Foundation Coal (NYSE: FCL) and Arch Coal (ACI) to Add from Neutral.
Discounting charges, Marysville, Ohio-based Scotts reported it made $77.7 million, or $1.19 per share for the quarter ended March 29, two cents better than the forecast of analysts surveyed by Thomson Financial. Revenue fell 4% to $958 million. The company also warned that profits would likely fall below Wall Street forecasts for the year.
Pilgrim's Pride, the nation's largest chicken producer, lost $111.5 million, or $1.67 per share, in the three months ended March 29 compared with a loss of $40.1 million, or 60 cents per share, a year earlier. Revenue rose to $2.10 billion. Analysts had expected a loss of 81 cents per share on $2.09 billion in sales. The company said feed costs would probably push the company to another loss in the current quarter as well.
Analysts expect Parsippany, New Jersey-based Avis to break even on a per share basis, on $1.37 billion revenue. In last year's first quarter, the company posted profit of 12 cents per share. It's unclear how much of an effect the current economic conditions will have on Avis's full-year 2008 results, but in April, rival Hertz Global Holdings Inc. (NYSE: HTZ) managed to post an adjusted quarterly profit that beat Wall Street predictions.
Shares of Scotts ended the day up 1.2%, but fell nearly 12% in after-hours trading to $30.00. Pilgrim's Pride fell less than 1% during the day, then another 1.1% after hours to $23.59. Avis also continued its slide into after-hours trading, down to $13.49.
MOST NOTEWORTHY: Yahoo!, Cigna and Aegean Marine were today's noteworthy upgrades:
Citigroup upgraded shares of Yahoo! (NASDAQ: YHOO) to Buy from Hold as they believe Microsoft (NASDAQ: MSFT) is unlikely to walk away from Yahoo! and that there is potential Microsoft could bid $34/share.
Credit Suisse upgraded Cigna (NYSE: CI) to Outperform from Neutral citing the company's favorable business mix.
Stephens upgraded shares of Aegean Marine (NYSE: ANW) to Overweight from Equal Weight on valuation as they see an attractive entry point at current levels.
OTHER UPGRADES:
JMP Securities raised D.R. Horton (NYSE: DHI) to Strong Buy from Outperform and Pulte Homes (NYSE: PHM) to Outperform from Market Perform.
Merrill Lynch cut shares of Citigroup (NYSE: C), Wachovia (NYSE: WB), and JP Morgan (NYSE: JPM) from "hold" to "sell." The report indicated a consumer recession and more write-offs would hurt the banks, according toMarketWatch.
Morgan Stanley cut Boeing (NYSE: BA) to "equal weight" from "overweight." Concerns over the launch of the 787 were given as the reason.
Hertz (NYSE: HTZ) was downgraded at Bank of America going from "buy" to "neutral" and with a price target falling from $27 to $20. The move was made based on "earnings sensitivity from a decline in used vehicle and equipment prices," according toBriefing.com.
Douglas A. McIntyre is an editor at 247wallst.com.
Worldwide car and equipment rental company Hertz Global Holdings, Inc. (NYSE: HTZ) posted record 3Q revenues and named Elyse Douglas as its new CFO. Not bad for a day's work. Unfortunately, such good news does not seem to have helped the stock, which dropped almost 7% of its value today, closing at $21.40, down $1.58. Despite the good 3Q numbers, continued weak demand for rental equipment in the transportation and construction industries means Hertz will have to try harder simply not to fall behind.
For 3Q 2007, worldwide revenue was up 9.3% to $2.45 billion. Revenue from worldwide car rentals increased 11%, due partly to an increase in the number of transaction days, as well as the average rental price per day. Airport rental rates increased around 5%, while off airport rental revenues shot up over 13%.
On the one hand, Hertz is growing its revenue stream, but on the other, it still carries a mountain of debt, $4.5 billion at the end of 3Q 2007. Hertz managed to reduce the debt load by a paltry $354 million during the quarter. Perhaps the new CFO Elyse Douglas can get the company's debt load under control so that more top line growth translates into bottom line growth.
MOST NOTEWORTHY: AVX Corp (AVX), Vishay Intertechnology Inc (VSH), Buffalo Wild Wings (BWLD) and three car-rental companies were today's noteworthy downgrades:
American Technology downgraded both AVX Corp (NYSE: AVX) and Vishay Intertechnology Inc (NYSE: VSH) to Sell from Buy after channel checks suggested weaker than expected demand for the June quarter from Europe, EMS, and distribution.
Sanders Morris believes investors should take profits in Buffalo Wild Wings Inc (NASDAQ: BWLD), cutting shares to Sell from Buy, and sees limited catalysts on the horizon that could drive shares higher.
America is a "sue-happy" country. Where else can you sue the dry cleaners for $54 million because they lost your Hickey Freeman pants. You think I am joking; but this is a case of life being stranger than fiction. A Washington DC judge (who in my opinion should know better) is suing a dry cleaners that lost his pair of pants.
For a moment last week my trust in the American legal system began to fail as Paris Hilton, heiress of Hilton Hotels (NYSE: HLT) fortune, spent a heart-wrenching three days in jail before being released by the sheriff for "medical reasons." Then suddenly my faith was restored as the judge sent her back to jail.
Well it didn't last long. It seems this week a pair of lost pants is worth crying over -- and $54 million. I guess America is land of the free and home of too many lawyers. Maybe this is why I respect Vice President Cheney: I mean, we all talk about the problem with lawyers, but at least he shot one.
Wall Street's equity market offers a solid slate this week - with five IPOs and ten Secondaries on the docket.
Those deals tentatively scheduled to price include:
IPOs:
Day Undetermined:
The Blackstone Group (BX), a 133.3M-share IPO. Morgan Stanley and Citigroup are the lead managers. Filing range: $29.00-$31.00.
Tuesday
Biofuel Energy (BIOF), a 9.5M-share IPO for this ethanol company. JP Morgan Chase, Citigroup, and AG Edwards are the lead managers. Filing range: $16.00-$18.00.
Wednesday
Bway (BWY), an 11.765M-share IPO for this container company. Goldman Sachs and the Bank of America are the lead managers. Filing range: $16.00-$18.00.
GeoVera Insurance (GEOV), a 5.99M-share IPO for this residential insurance company. JP Morgan Chase and Merrill Lynch are the lead managers.
Thursday
Aegerion Pharmaceuticals (AEGR), a 5M-share IPO for this cardiovascular medicines company. Lehman Brothers is the lead manager. Filing range: $12.00-$14.00.
MOST NOTEWORTHY: Roo Group (RGRP) Best Buy (BBY), Circuit City Stores (CC) and several healthcare companies were today's noteworthy initiations:
ROO Group (OTCBB: RGRP) was initiated with a Buy rating and $3.50 target at Cantor. The firm believes the company is one of the few pure-play online video public investment opportunities for investors today.
Best Buy (NYSE: BBY) and Circuit City Stores (NYSE: CC) were initiated at FTN Midwest with a Buy rating and Neutral rating, respectively.
Needham initiated shares of RadiSys Corp. (NASDAQ: RSYS) with a Buy rating and $17 target, as it expects the company to benefit from the development of standards-based embedded solutions.
Atmel Corp. (NASDAQ: ATML) was initiated with a Buy rating and $7.50 target at American Technology.
Genomic Health (NASDAQ: GHDX) was initiated with an Outperform rating at Leerink Swann.
Delta Air Lines (NYSE: DAL) was initiated with a Buy rating and $24 target at Soleil.
Banc of America initiated shares of Hertz Global Holdings (NYSE: HTZ) with a Buy rating and $27 target.
Hertz Global Holdings Inc. (NYSE: HTZ) posted record 4Q revenues just shy of $2 billion, an 8% increase over 4Q 2005. Numbers were good across the board. 4Q adjusted pre-tax income was $132.5 million, up 142.2%. No, that's not a typo. Adjusted pre-tax income more than doubled for the period. Net corporate debt decreased $388 million in 4Q alone. Car rental revenues were up 7.3% to $1.55 billion. Equipment rental revenue was up 10.6% to $436 million. Net income for 4Q 2006 was $39.8 million, $0.14 per fully diluted share.
For the full year, worldwide revenue was up 7.9% and adjusted pre-tax income was up 47.1% while net corporate debt for the year decreased $284 million.
To what should we attribute this very positive numbers? Remember that 4Q 2005 was the time of the Gulf Coast hurricanes that depressed business earnings across the board, so it is easy to post impressive quarter-to-quarter gains. But Hertz's numbers are more than that. Hertz management has been steadfast in cutting operating expenses, yet at the same time increasing the advertising budget by more than $6 million. Rental prices per day increased total rental rate revenue 3% in the US. Hertz also signed a multi-year deal to be the car rental agency of choice for AAA. Hertz has been developing and promoting its own-way car rentals anywhere in the US. Hertz has also combined with Ryanair, a budget European airline to provide ground transportation at key destination points. Beginning in January 2007, Hertz and United Airlines have a preferred partnership deal. Lastly, Hertz.com, the online reservation and booking site, hit over $1 billion in rental revenue.
Looking forward, Hertz forecasts mid single-digit demand growth for rental cars in the US and Europe. Full-year 2007 revenues are forecast at $8.5-$8.6 billion. Adjusted net income is forecast in the $372-395 million range, approximately $1.15-1.22 per share.
We blogged in November to invest in the Hertz (NYSE: HTZ) IPO and those who suffered through the initial volatility are up close to 20%.
Avis Budget Group (NYSE: CAR) is also a good play on the rental car business. Hertz was acquired by private equity from Ford (NYSE: F) and recently came public. Avis was spun off from Cendant last year. Now the two largest rental car companies are publicly traded.
The mere fact that the two largest players are publicly traded should impose pricing discipline. This should translate into higher earnings and higher stock prices for both players over time.
According to Oscar Schafer in this weekend's Barron's Roundtable (subscription required), he expects the company to earn $3.00 this year. With the stock at $24, that is just 8x earnings.
This stock has rallied a bit most likely on Barron's whispers since the interview was held a few weeks ago and only published this weekend. I'd wait for a little pull back and then jump into this stock.
MOST NOTEWORTHY: Constellation Energy Group (CEG) and Hertz Global Holding (HTZ) were the most notable downgrades this morning.
Deutsche Bank initiated shares of Constellation Energy Group (NYSE: CEG) with a Buy rating and $78 target; the firm said valuation is compelling as the market has barely priced in the valued of BED, the merchant plants and the PV of the current backlog.
Wachovia started shares of Hertz Global Holding (NYSE: HTZ) with a Market Perform rating. They see limited upside to shares due to broader economic concerns.
OTHER INITIATIONS:
Merrill Lynch initiated shares of Winnebago (NYSE: WGO) with a Neutral rating, saying shares are fairly valued.
UBS initiated shares of KBR, Inc. (NYSE: KBR) with a Neutral and $26 target.
Cramer already endorsed the NYMEX (NMX) IPO and the KBR (KBR) IPO, but he panned the Hertz (HTZ) IPO.
Cramer said the IPO to avoid this week is Hertz (HTZ). He thinks this one can burn you. This is where the sellers of the IPO make a lot of money, but the new buyers can be left holding the bag. He thinks it can end up being just like the Seally Corp. (NYSE:ZZ) IPO and he won't touch it with a pole.
He said the first thing is to do no harm. He won't use the Vonage Holdings (NYSE:VG) or the Burger King Holdings (NYSE:BKC) deal, but he thinks it will be a disappointment.
This was sold to a private equity group for $15 Billion and the new sale is 27% being sold. They have increased the debt and knocked down earnings. The $16 Billion of the IPO, but over $900 million of the IPO is funding a special dividend and another $400 million is essentially another dividend. The 3 firms also have 7 of 9 board seats and this is one that you need to avoid.
He thinks it won't go above $20.00 after the IPO any time soon and the downside is just too hard to calculate.
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