Hertz Stock Is Winning as Avis’s Gain Outweighs Tweet From Musk

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Hertz Global Holdings

gained 14% Tuesday morning in an apparent response to a huge gain in

Avis Budget Group
,
whose stock has nearly doubled in a potential short squeeze after the car-rental company reported strong financial results late Monday.

The Avis (ticker: CAR) news is outweighing the impact of a tweet from

Tesla

CEO Elon Musk late Monday saying that there is no signed contract for the electric-car company to deliver 100,000 vehicles to Hertz by the end of 2022. Hertz (HTZZ) said last week that it made an initial order for the cars.

Hertz shares (ticker HTZZ) were up $4.88 at $39.03, a 14.2% gain, after trading as low as $30.75 after the opening. The stock rose as high as $46.

The truly big move has come in Avis, whose stock is up 94.8%, or $162.54, to $334 after it reported adjusted third-quarter earnings of $10.74 a share, above the consensus view on Wall Street that per-share earnings would be $6.87. The year-earlier result was $1.13 a share. Avis shares hit a high of $545 earlier Tuesday.

That scale of gain—a near doubling of the share price in less than a day—is a sign that investors who had bet that Avis shares would fall are being forced to buy to limit their losses. Avis’s market value has soared to $21 billion.

The company now trades for almost 30 times next year’s projected profits of about $12 a share, although estimates for 2022 probably will move higher given Avis’s blowout results.

Hertz’s market value now stands at $19 billion. The company has a very thin public float of just 3% of its shares outstanding, adding to the volatility in its shares. The stock has been difficult to sell short given the limited supply of publicly available stock.

Hertz shares trade on the Pink Sheets and are due to move to the Nasdaq after the company completes an equity offering that could be priced by Thanksgiving.

The low float reflects the way Hertz emerged from bankruptcy on June 30. It issued about 14 new million shares—out of a total of 471 million outstanding— to former Hertz shareholders. The rest of the stock is in the hands of mostly institutional investors who bought shares as part of the restructuring.

That stock now is subject to trading restrictions under the Securities and Exchange Commission’s Rule 144, which deals with the trading of restricted shares. The stock should be available for sale at the end of 2021, six months after Hertz’s reemergence, subject to certain restrictions. The stock in Hertz’s public equity offering will be made by existing holders.

“Since the Reorganization Effective Date, only the shares of common stock issued pro rata to the holders of Old Common Stock, which represent 3% of our outstanding common stock, have been available for trading on the OTC Bulletin Board and there has been a low volume of trading in our common stock,” Hertz said in its S-1 filing for the stock sale.

“The trading price on Nasdaq may bear no relation to the historical prices on the OTC Bulletin Board,” it said.

There is trading in so-called Rule 144-a Hertz stock among institutions on Wall Street trading desks. That stock lately has been around $21 a share, a discount to the public market.

 In a tweet Monday night, Musk said, “I’d like to emphasize that no contract has been signed yet.” That seemed to contradict Hertz’s press release on Oct. 28 that it had made “an initial order of 100,000 Tesla by the end of 2022.”

 A Hertz spokesman said in response: “Hertz has made an initial order of 100,000 Tesla electric vehicles and is investing in new EV charging infrastructure across the company’s global operations. Deliveries of the Teslas already have started. We are seeing very strong early demand for Teslas in our rental fleet, which reflects market demand for Tesla vehicles.”

Write to Andrew Bary at [email protected]