Debt-strapped Hertz Global Holdings (HTZ) plunged 24% after the car rental company announced plans to raise as much as $500 million from a sale of new shares.
The stock dropped 24% to $2.15 in early afternoon trading.
The announcement comes after a bankruptcy judge on Friday approved the car rental company’s request to sell up to $1 billion of common stock to take advantage of its recent share rally. Since Hertz filed for bankruptcy at the end of last month, the stock has surged from a low of 56 cents on May 26 to a high of $5.53 on June 8.
Investors piled up on the stock amid optimism that Hertz will work its way through bankruptcy proceedings, while travel may rebound following the coronavirus crisis.
At the same time, Hertz warned that there was a significant risk that shareholders won’t receive recovery under the Chapter 11 proceedings and that its “common stock will be worthless”.
Last week, the company pledged to challenge plans by the New York Stock Exchange (NYSE) to delist its common stock from the exchange. Hertz appealed the determination and has requested a hearing before the NYSE.
The exchange made the decision after Hertz disclosed on May 22 that it has commenced voluntary petitions for reorganization under chapter 11 of the Bankruptcy Code.
“At this time, the common stock of the company will continue to be listed and trade on the NYSE pending resolution of such appeal” Hertz said.
Hertz has seen its stock plunge 87% in value year-to-date. The troubled car rental company has a bearish Moderate Sell consensus from the Street with 2 recent Hold ratings and 4 Sell ratings. (See Hertz stock analysis on TipRanks).
The average analyst price target stands at just $2.33, implying 11% upside potential in the shares over the coming year. Deutsche Bank analyst Chris Woronka has a Hold rating on the stock with a $3 price target, saying “it’s difficult to fundamentally analyze the company” due to the bankruptcy proceedings.
While the “reopening trade” for stocks set to improve post-lockdown has become popular, Woronka nevertheless finds himself “questioning the true depth of the buying in what increasingly feels like a capitulation-type short squeeze being exacerbated by high frequency trading programs.”
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