Hertz (HTZ)

Global car rental company Hertz (NASDAQ:HTZ) reported Q3 CY2025 results topping the market’s revenue expectations, but sales fell by 3.8% year on year to $2.48 billion. Its non-GAAP profit of $0.12 per share was 83.8% above analysts’ consensus estimates.

Company Overview

Started with a dozen Model T Fords, Hertz (NASDAQ:HTZ) is a global car rental company providing vehicle rental services to leisure and business travelers.

The growth of e-commerce and global trade continues to drive demand for shipping services, especially last-mile delivery, presenting opportunities for ground transportation companies. The industry continues to invest in data, analytics, and autonomous fleets to optimize efficiency and find the most cost-effective routes. Despite the essential services this industry provides, ground transportation companies are still at the whim of economic cycles. Consumer spending, for example, can greatly impact the demand for these companies’ offerings while fuel costs can influence profit margins.

Public competitors in the car rental industry include Avis (NASDAQ:CAR) and Zoomcar (NASDAQ:ZCAR), while a prominent private competitor is Enterprise.

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Hertz grew its sales at a mediocre 6% compounded annual growth rate. This fell short of our benchmark for the industrials sector and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Hertz’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 3.9% annually. Hertz isn’t alone in its struggles as the Ground Transportation industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.

This quarter, Hertz’s revenue fell by 3.8% year on year to $2.48 billion but beat Wall Street’s estimates by 3.1%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months. While this projection implies its newer products and services will spur better top-line performance, it is still below the sector average.

Hertz has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 22% gross margin over the last five years. That means Hertz paid its suppliers a lot of money ($77.98 for every $100 in revenue) to run its business.

Hertz produced a 41.3% gross profit margin in Q3, marking a 34.3 percentage point increase from 7.1% in the same quarter last year. Hertz’s full-year margin has also been trending up over the past 12 months, increasing by 18.7 percentage points. If this move continues, it could suggest an environment where the company has better pricing power and stable or shrinking input costs (such as raw materials).

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Hertz has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 9.6%, higher than the broader industrials sector.

Looking at the trend in its profitability, Hertz’s operating margin decreased by 22.4 percentage points over the last five years. Many Ground Transportation companies also saw their margins fall (along with revenue, as mentioned above) because the cycle turned in the wrong direction. We hope Hertz can emerge from this a stronger company, as the silver lining of a downturn is that market share can be won and efficiencies found.

This quarter, Hertz generated an operating margin profit margin of 19.4%, up 21.5 percentage points year on year. The increase was driven by stronger leverage on its cost of sales (not higher efficiency with its operating expenses), as indicated by its larger rise in gross margin.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Although Hertz’s full-year earnings are still negative, it reduced its losses and improved its EPS by 15.8% annually over the last five years. The next few quarters will be critical for assessing its long-term profitability.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

Sadly for Hertz, its EPS declined by more than its revenue over the last two years, dropping 75.8%. This tells us the company struggled to adjust to shrinking demand.

Diving into the nuances of Hertz’s earnings can give us a better understanding of its performance. A two-year view shows Hertz has diluted its shareholders, growing its share count by 11.3%. This dilution overshadowed its increased operational efficiency and has led to lower per share earnings.

In Q3, Hertz reported adjusted EPS of $0.12, up from negative $0.68 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

While Hertz posted positive free cash flow this quarter, the broader story hasn’t been so clean. Hertz’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 2.5%, meaning it lit $2.50 of cash on fire for every $100 in revenue.

Taking a step back, an encouraging sign is that Hertz’s margin expanded by 25.6 percentage points during that time. Despite its improvement and recent free cash flow generation, we’d like to see more quarters of positive cash flow before recommending the stock.

Hertz’s free cash flow clocked in at $809 million in Q3, equivalent to a 32.6% margin. Its cash flow turned positive after being negative in the same quarter last year, marking a potential inflection point.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Hertz hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 20.9%, splendid for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Hertz’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.

Hertz’s $19.7 billion of debt exceeds the $1.55 billion of cash on its balance sheet. Furthermore, its 12× net-debt-to-EBITDA ratio (based on its EBITDA of $1.46 billion over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Hertz could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope Hertz can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

It was good to see Hertz beat analysts’ EPS expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a solid print. The stock traded up 19.1% to $5.90 immediately following the results.

Updated: December 4, 2025 at 10:33 PM EST

When considering an investment in Hertz, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

We see the value of companies helping their customers, but in the case of Hertz, we’re out. To kick things off, its revenue growth was mediocre over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its rising cash profitability gives it more optionality, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its declining operating margin shows the business has become less efficient.

Hertz’s EV-to-EBITDA ratio based on the next 12 months is 9.7x. This valuation multiple is fair, but we don’t have much confidence in the company. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $4.39 on the company (compared to the current share price of $5.14).