Goldman Sachs Jump Starts Hertz At Buy: What You Need To Know

In a report published Thursday, Goldman Sachs analyst Afua Ahwoi reinstated coverage of Hertz Global Holdings, Inc. HTZ with a Buy rating and price target of $23. The analyst expects 28 percent upside to the stock valuation.

The analyst believes there are several catalysts that could help the company cope with the weak industry fundamentals over the next 12 months, while driving the share price up.

According to the Goldman Sachs report, "HTZ first disclosed its operational challenges and subsequent accounting issues in mid-2013. With the company now current on its financial filings, we think investors will start to re-engage with the story."

Among the catalysts to the stock is the proposed spin-off of the equipment rental business, which the analyst believes has "strategic merit."

"Proposed equipment rental spinoff has strategic merit: Equipment rental is a roughly 20% drain on net fleet capex, is highly cyclical and has no synergies with the core rental car business," Ahwoi elaborated.

Also, the company's profit growth appears to be benefiting from the cost-cutting measures, and the analyst expects the 2015-2017 EBITDA growth to outpace that of Avis Budget Group, Inc. CAR, despite weaker top-line trends.

Hertz has authorized the repurchase of stock worth $1 billion. If the spin-off of the equipment rental division is successful, this authorization could move up, while debt repayment could accelerate with the spin-off freeing up cash.

In addition, "Since mid-2013, Hertz has dramatically underperformed Avis. We believe that, once investors re-engage with the story, shares could move higher," Ahwoi added.