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Columbia Business School's Pershing Square Challenge

Columbia Business School's Pershing Square Challenge

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Investment write up on Hertz (HTZ) by Richard Hunt, Stephen Lieu, and Rahul Raymoulik.
Investment write up on Hertz (HTZ) by Richard Hunt, Stephen Lieu, and Rahul Raymoulik.

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Categories:Types, Business/Law
Published by: Wall Street Wanderlust on Apr 29, 2013
Copyright:Attribution Non-commercial


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Richard Hunt '14 (RHunt14@gsb.columbia.edu)Stephen Lieu '14 (SLieu14@gsb.columbia.edu)Rahul Raymoulik '14 (RRaymoulik14@gsb.columbia.edu)
Investment Thesis
Multiple Drivers of Value
We recommend investors buy Hertz (HTZ) stock with atarget share price of $36.00, which represents ~52% upsidefrom the current share price
Four Main Points to Investment Thesis
The market significantly underestimates the impact of Hertz's recent merger with Dollar Thrifty, which marks thecompletion of a ten-year consolidation that dramaticallyimproves the competitive dynamics of the industry
The market underestimates the levers Hertz can pull tocounter the negative impact of falling used car prices
Hertz has strong revenue growth opportunities in the U.S.and will realize significant revenue and cost synergiesthrough its acquisition of Dollar Thrifty
Divestiture of non-core Equipment Rental business wouldunlock substantial value by deleveraging the balance sheet
 As of 4/19/13; in USD m except per share data
Stock Price$23.72Diluted Shares Outstanding (M)462.0
Market Cap$10,959
Corporate Debt6,545Cash(1,105)
Unfunded Pension Liability
Enterprise Value$16,626
52-Week Range$10.22-$24.28Dividend Yield0.0%Avg. Daily Volume (M)7.7Short Interest as % of Float11.0%2013e2014eEV / Revenue1.5x1.4xEV / EBITDA7.4x6.4xP / E12.5x9.9x
Current CapitalizationTrading StatisticsSummary Valuation
Business Overview
Car Rental (2012 rev: $7.6bn)
: Operates through theHertz, Dollar and Thrifty brands. Rents cars that thecompany owns or leases. Maintains a substantial network of car rental locations both in the United States andinternationally, and the largest number of airport car rentallocations in the world
Equipment Rental (2012 rev: $1.4bn)
: Operates throughHERC brand. Rents a broad range of industrial, constructionand material handling equipment. Also sells new equipmentand consumables. One of the largest equipment rentalcompanies in North America
Business Description Rental LocationsRevenue Breakdown
With the acquisition of Dollar Thrifty, the Company hasover 10,000 locations across the United States and 17other countries
International Countries
Puerto RicoFranceSlovakiaU.S. Virgin IslandsGermanyUnited KingdomCanadaItalyChinaBrazilLuxembourgAustraliaBelgiumNetherlandsNew ZealandCzech RepublicSpain
Segment Geography
Staffed rental locations3,2101,2154,425
 Airport 642304946 Off-airport2,5689113,479
 Non-staffed locations 1,3601501,510
Total Corporate4,5701,3655,935
Franchised / Licensee4,335
Total Locations10,270
Car Rental85%EquipmentRental15%UnitedStates70%Intl30%

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