Event: Rental car company Hertz (NYSE: HTZ) disclosed in a regulatory filing that several private equity funds including Carlyle Group and Bank of America Merrill Lynch would be selling 50 million shares in a public offering of stock. The offering was priced at $15.80 per share. After the sale, the funds involved will still own 110 million shares or 26% of Hertz. Shares of Hertz were down 4% in morning trading on Tuesday.
Analysis: Institutional selling is never a good thing. It is even more problematic in the dicey world we live in today. In these cases, the market perceives a general lack of confidence, hence the selling after the news was announced. Despite the sale, the funds involved still own a fairly sizeable chunk of the company. Is the selling an opportunity to buy shares at a discount? Looking purely at valuation the selling today makes already cheap shares cheaper. Analysts expect Hertz to grow profits in 2013 by 27%. At current prices, shares trade for only 9 times 2013 estimated earnings. The company beat estimates in the most recent quarter ending Sept. 30, 2012 just as they have done over the last year. Shares have gained approximately 50% since the summer which might explain the institutional selling today. Profit taking is never a bad idea, but in this case it would seem there are more gains to be had. Do the funds know something? I don’t think or they would have sold more. I think the decrease in share price is to be bought.
Action: Buy HTZ shares for a nice 3-6 month gain of 10% or more.