Dollar Thrifty's Demolition Derby
Corporate guidance crashes and burns.
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%.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter