Hertz’s possibly worthless stock soars in risky recovery bet
Hertz Global Holdings Inc. shares are rallying two weeks after the company filed for bankruptcy in an extreme example of the bets investors are making on recovery from the coronavirus pandemic.
The car renter’s stock traded as high as $3.70 shortly after the start of regular trading Friday, a 353% surge from Wednesday’s close.
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Hertz and its rival Avis Budget Group Inc. got a boost Thursday from signs air travel is poised to rebound.
Hertz also is likely to benefit from prices of used cars at auctions coming all the way back from a mid-April collapse. Market researcher J.D. Power said Thursday that prices last week were above its pre-virus forecast.
Those positives aside, Hertz’s equity holders are still taking on significant risk. Shareholders rarely recover anything from companies that have filed for Chapter 11 because under US Bankruptcy Code, all of a company’s debts must be repaid in full before stockholders recover anything.
Buyers of Hertz shares likely are betting on the cheap that the rapid recovery of used-car prices will preserve the value of the rental company’s fleet and leave some money left over for equity holders, said Hamzah Mazari, a Jefferies analyst.
Still, he said the bets probably won’t pay off. “There may be some sort of resolution for equity holders in June," Mazari wrote in an email. “Unlikely. Options market is saying there is a 90% chance it trades back to $0.50 or below."
Billionaire investor Carl Icahn was Hertz’s biggest shareholder when the Estero, Florida-based company sought court protection on May 22. He sold all of his 55.3 million shares on May 26 at a loss of almost $1.6 billion.