The Economist's Superficial View of Hertz

The Economist is my favorite magazine. Since I joined the 21st century and started downloading it on my Samsung tablet, I can now read it on Thursday nights when it’s published instead of waiting for my physical copy to arrive by mail, on Saturday (if I’m lucky). The writing is invariably high quality and typically well researched. I don’t always agree with their opinions though. They recently suggested that the resignation for personal reasons of Mark Frissora, former CEO of Hertz (HTZ), somehow reflected his prescient forecast that the car rental business is in for hard times. The article relies heavily on Morgan Stanley who are bearish on HTZ.

Of course it’s possible Frissora could be so farsighted. But there are a few problems with this theory. First, the car rental business is great right now. Avis (CAR), HTZ’s main competitor, is enjoying record business. Its stock recently made an all-time high. HTZ business and stock have both been struggling. They still haven’t reported 2013 financials, and in their most recent quarter attributed weak revenues to unexpectedly strong demand from business clients whose advance booking left insufficient cars to meet short term, more profitable leisure customers. Neither one of these issues sound like industry-specific as much as the result of poor management at HTZ.

My guess is that the increasing role of activist investors looked likely to make Frissora’s life miserable. The company is relocating to Estero, in SW Florida and no doubt the Naples golf courses looked increasingly appealing compared with battling Mark Tannenbaum of Fir Tree Partners, a HTZ investor who recently said Frissora, “has completely lost credibility.” Yesterday Carl Icahn reached an agreement with HTZ to replace three existing board members with his own slate. 

We thought Frissora would soon be leaving. His departure is good for HTZ investors. We remain one of them.

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