Barclays chastised Wall Street for driving up Hertz's stock price 99 percent from June 21 through July 28, saying it "ignores the challenges ahead" in Hertz's earnings recovery. Before the bump, shares of Hertz had fallen 80 percent over the last year. Barclays previously rated the company's shares equal weight.
Barclays attributed the recent share gains to "the first positive data points in quite some time." Hertz shares closed Friday at $17.34. They closed Monday at $13.67.
The runup in the last month forced bearish traders to close out their bets against the stock and brought buyers in, and with a fairly illiquid stock, "it's not hard to see how movements can be outsized," Barclays wrote in a note to investors.
Barclays is expecting a big miss in Hertz's second-quarter earnings report, which is slated to be released Aug. 8. It is forecasting earnings before interest, taxes, depreciation and amortization of $34 million. The average estimate of analysts is $95 million.
"That said, our view is that the sharply negative miss vs. consensus will be enough to drive down the stock, especially given the amount that it has rallied," Barclays wrote.
Barclays noted it appears buyers are already anticipating a big miss, and that CEO Kathryn Marinello could provide a clearer picture of Hertz's road map and future financial targets.
Hertz stock price since June 21, 2017
Hertz has bigger problems plaguing it than its second-quarter earnings, Barclays said, adding its main concern is that Hertz's stock is not adequately pricing in the challenges ahead in its earnings recovery.
To justify Hertz's current stock price, Barclay's said, Hertz would need to post earnings before interest, taxes, depreciation and amortization of about $600 million in 2019. Barclays is forecasting Hertz will report about $430 million.
Barclays anticipates multiple challenges to the auto rental operator's recovery, such as rising vehicle fleet costs that are not likely to reverse anytime soon, declines in rental pricing and the unlikelihood of cost-cutting initiatives as Hertz invests in enhancing the customer experience.
Barclays said it will be more focused on the third quarter, "which is somewhat of a make-or-break quarter" for the car rental industry.