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Dollar Thrifty's Demolition Derby


Corporate guidance crashes and burns.

Car rental company Dollar Thrifty (DTG) said yesterday that it expects to generate "a minimum of $50 million in Corporate EBITDA for the year." This is alarming, given the fact that the Oklahoma-based company had previously expected to generate between $97 and $115 million. The new minimum is less than half of 2007's EBITDA of $107.5 million.

The reason for the downbeat outlook: A lackluster second quarter (results should be reported on August 5th) and a tough economy. All three of the largest publicly traded car companies -- Dollar Thrifty, Avis (CAR), and Hertz (HTZ) lost money in the first quarter, having failed to cope with higher vehicle costs from car manufacturers.

Even more distressing: Management's previous forecast was released less than two months ago, on May 12th, in conjunction with first-quarter numbers. This may indicate that management misjudged the company's future, or that things have taken a dramatic turn for the worse in a fairly short period of time.

Either scenario is unsettling, and Dollar Thrifty's stock price more than reflects that, having plunged to a 10-and-a-half year low in New York trading yesterday. For comparison, Avis declined $1.08, or 13%, to $7.29, and Hertz dropped $1.13, or 12%, to $8.47 yesterday.

As CL King analyst Michael Gallo noted, the lower forecast also means that the company could have trouble meeting lending requirements on its $600 million credit agreement and, since Dollar Thrifty is currently carrying $250 million in corporate debt, waivers may also be necessary.

Without knowing how the company will confront such a crisis -- and given the fact that we will have to wait till second quarter results are posted on August 5th to get a clearer picture of the current situation -- that could easily scare a sizable number of retail and institutional players out of the stock.

I can only assume that consensus numbers are also going to come down, and that research on the entire car rental space will be quite negative in the weeks ahead, both of which would keep the stock under pressure.

Dollar Thrifty closed at $5.70, down $3.75 or 39.68%.
No positions in stocks mentioned.

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