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Investing.com -- Hertz (NASDAQ:HTZ) shares surged 56% on Wednesday and added another 44% on Thursday after Bill Ackman’s Pershing Square (NYSE:XYZ) hedge fund disclosed a new stake in the car rental company.

In an amended 13F filing Wednesday morning, Pershing Square first disclosed it owned a 4% stake in the company as of the end of 2024.  Yesterday afternoon, reports surfaced that the stake is now 20%, including swaps. 

This afternoon, via X, Ackman confirmed the stake and provided insight into the position.  Highlights were that he sees the stock being worth around $30 per share by 2029 and floated the idea of a partnership with Uber (NYSE:UBER).  Ackman also owns a significant stake in Uber, so the potential deal has some merit.

Ackman said they began accumulating shares in the car rental company late last year, viewing Hertz as a blend of an operating business and a highly leveraged automobile portfolio. He acknowledged that Hertz had previously faced challenges due to its Tesla (NASDAQ:TSLA) vehicle purchases, which led to operational issues and unexpected losses following Tesla's price reductions.

The hedge fund manager expressed confidence in Hertz's potential for a high return on investment, citing four key factors: an improving industry structure, near resolution of the company's overexposure to Tesla, a successful operational turnaround by new management, and a leveraged capital structure. He noted the oligopolistic nature of the U.S. car rental market, with Hertz, Enterprise, and Avis dominating nearly 95% of the industry, and pointed out the improved pricing discipline since the pandemic.

Ackman believes that Hertz's CEO Gil West and his team are making significant improvements in fleet management, unit revenues, and operating costs, which will enhance profit margins in the coming years. Ackman highlighted Hertz's progress in replacing higher-cost vehicles, which is expected to reduce depreciation expenses.

Despite Hertz's highly leveraged balance sheet, Ackman pointed out that the majority of its debt does not mature until 2028 and 2029, and the company has sufficient liquidity to support its fleet operations and financial obligations. He also mentioned Hertz's advantageous position in the current tariff environment, with a fleet valued at approximately $12 billion, and the potential for a substantial gain if used car prices rise due to tariffs.

Hertz secured its 2025 model year fleet purchases earlier this year, ensuring favorable terms before tariff enactment. Ackman projected that Hertz could generate around $2 billion of Adjusted EBITDA by 2029, and estimated the company's worth at approximately $30 per share at that time, a valuation he considers conservative.

While acknowledging the near-term impact of tariff announcements on the travel industry and expecting subdued results for Hertz in the first half of the year, Ackman remains optimistic about the company's prospects for sustained profitability.

He concluded by suggesting the possibility of a partnership between Hertz and Uber, leveraging Hertz's extensive fleet and infrastructure to enhance vehicle utilization and profitability.

“Come to think of it, I am going to call Dara Khosrowshahi”, Ackman added. Khosrowshahi is the CEO of Uber.

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