Hertz Global Holdings (HTZ) is conducting one of the most aggressive stock repurchase campaigns of all stocks. The car rental company, which manages the Hertz, Dollar and Thrifty brands, just reported its Q2 financials on July 28, which shows how dramatically it is pursuing share repurchases.
For example, over the last year alone it has reduced its share count by over 103 million shares. That reduced its common stock shares from 471.4 million to just 368.386 million as of June 30. That represents a 21.85% drop in its share in the past year alone.
Latest Share Buybacks
And Hertz is not stopping. In its Q2 financial report, the company's cash flow statement shows that it spent $881 million on share buybacks in Q2 and $1.647 billion over the last six months. That puts it on an annual run rate of spending $3.52 billion on share repurchases.
This is significant as at today's stock price of $21.04 (Aug. 2), the company has a market cap of just $7,751 billion (i.e., 368.386m shs x $21.04). In other words, it could end up spending 45.4% of its market cap on buybacks.
But just to be conservative let's stick to what the company has stated it is planning. For example, in its Q2 report, the company said it has recently started another $2 billion share buyback program. Under its new $2 billion share repurchase authorization it had already bought back 9.1 million shares. As the buyback authorization was now down to $1.8 billion, this implies it has spent $200 million on the purchases in just one month or so.
So that puts it on a run rate of about $2.4 billion in buybacks on an annual rate. That is more likely since its free cash flow (FCF) is close to that.
Powered by Free Cash FlowÂ
The company reported that during Q2 Adjusted free cash flow was $484 million. So that puts it on an annual run rate of just under $2 billion ($1.936 billion). That is reasonably close to its existing $2.4 run rate of share buybacks, as mentioned earlier. The difference would be financed by a drawdown in the company's $1.04 billion in cash, or else an increase in debt.
As a result, investors can feel reasonably comfortable that at least $2 billion of its $7.75 billion market cap will be spent on buybacks. That represents 25.8% of its market value. And it could be as much as $2.4 billion, or 31% of its market cap.
Bottom Line
But that does not mean Hertz's share count will fall by 25-30%. For example, the stock price is likely to appreciate with all that buyback activity. So, for example, if the stock rises by 10%, this could reduce the 25% share count reduction down to 22.5%. And if the stock rises by 20%, the buybacks would reduce shares outstanding by just 20%.
But that is a good thing for investors. They could be looking at a 20% rise in the stock over the next year, along with a 20% cut in the shares outstanding. That augurs well for future price gains in HTZ stock.
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