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Why Did Hertz (HTZ) Stock Skyrocket Today?

Hertz HTZ reported a $158 million second-quarter loss on Tuesday, yet investors guzzled up the struggling rental car company’s stock on Wednesday.

The Estero, Florida-based car rental agency reported a loss of $0.63 a share for the quarter, which fell well below our Zacks Consensus Estimate of a loss of $0.12 per share. Hertz also missed our revenue projection of $2.23 billion, posting $2.22 billion in revenue for the quarter.

Hertz stock has fallen by 70% in the last year, and the company now owns a Zacks Rank #5 (Strong Sell). Still, shares of Hertz skyrocketed almost 25% on Wednesday, and the stock traded hands over 22 million times, more than double its average volume

Why? Well, one possible reason might be the rise of ridesharing services, such as Uber, which were said to signal the eventual end of the rental car industry as we know it today.

On the same day that Hertz announced its dismal quarterly results, reports surfaced that Uber plans to sell or consolidate its U.S. car-leasing sector by the end of the year.

People within the ridesharing power said the company is set to shut down, sell, or consolidate its Xchange leasing division. Uber began to offer drivers with less-than solid credit the opportunity to lease cars through the company in 2015. However, the Wall Street Journal reported that two years in, Uber lost an average of $9,000 per leased car—it expected to lose around $500 a vehicle.

It would seem that Uber began to preemptively test new ways to connect potential drivers with cars. The ridesharing company partnered with Avis Budget Group’s CAR Zipcar on a trial basis earlier this year to offer drivers discounted rates with the hourly rental car service. Uber also joined forces with General Motors GM and Toyota T to set up driver leasing plans.

So what does this have to do with Hertz and other rental car companies?

Analysts began to hint at the possibility that rental car companies could transition their massive vehicle fleets into ride hailing services. If they chose not to pivot completely, firms such as Hertz could lease its older models to Uber or Lyft drivers—companies normally sell older cars, but low used car resale pricing has contributed to the rental car industry’s recent profit squeeze.

J.P. Morgan JPM analyst Samik Chatterjee dove into the possibilities of such a shift recently.

“With existing scale of fleet operations, rental car companies strike us as natural owners of car sharing solutions, with new entrants likely struggling to achieve threshold volumes in a fragmented market to reach profitability,” Chatterjee said in a note to clients last week. “Moreover, we believe the advent of fully autonomous driving will level the playing field for rental car companies and ride share solutions, making them one and the same, additionally necessitating investments in fleet management services by ride share companies.”

MKM analyst Christopher Agnew updated his Hertz estimates and reiterated his “Buy” rating today based the notion that the company is in the midst of a successful transition year. On top of that, investors should note that activist investor Carl Icahn owns a significant stake in Hertz and Lyft.

Shares of Avis Budget Group (CAR) jumped 6.15% through mid-afternoon trading on Wednesday despite reporting weak second-quarter earning and revenue on Monday, a curious uptick after the stock fell 10% in after-hours trading.

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