Hertz: Accounting Issues ‘Least of the Challenges,’ Morgan Stanley Says

Morgan Stanley’s Adam Jonas and team fret that Hertz’s problems go beyond its well-known accounting problems:

The company has had a lot on its plate in recent years: expanding into the used car business, implementing new technology, and acquiring and integrating DTG. While there have clearly been challenges, to which the company is openly admitting, we are confident that many of the integration issues are short-term in nature and that Hertz management, led by Chairman and CEO Mark Frissora, will succeed in overcoming these short term issues. However, we continue to see an alignment of new forces from within and outside of the traditional car rental ecosystem that can put significant pressure on the earnings power of Hertz and its industry peers. We continue to view car rental as a highly cyclical business. In a great year, we believe it is possible for Hertz to achieve an EPS in the $3 range (based on current share count). In a bad year, we believe losses are possible (even excluding 1-time restructuring expenses). In a normal year, we see Hertz´s earnings power at around $1.50 per share.

Despite mounting evidence of industry challenges, Hertz shares continue to trade at all-time highs. Our valuation of Hertz shares suggests substantial downside from current levels. We recommend investors take advantage of the unique market conditions (near record high used car prices and constructive activist sentiment) to reduce exposure.

How much downside? Jonas cut his price target on Hertz to $19 from $20. With Hertz shares off 1.3% at $30.34 today, that means shares could fall an additional 37%. Shares of Avis Budget Group (CAR) have fallen 1.1% to $67.97.

Snapchat valued at more than $10 billion - report

  What is Snapchat? NEW YORK (CNNMoney) Investors are betting there's a lot of money to be made in disappearing photos.

Snapchat has reportedly fetched a huge round of funding from one of the most powerful Silicon Valley investors, valuing the social network at about $10 billion.

The disappearing-message app is not yet profitable, but that has not stopped the flow of funds to Snapchat.

According to the Wall Street Journal, venture capital firm Kleiner Perkins has invested $20 million in Snapchat. That follows an investment earlier this year from Russian firm DST Global, which valued Snapchat at $7 billion, according to the Journal.

Snapchat is rumored to have turned down a $3 billion buyout offer from Facebook. And Alibaba was reportedly mulling an investment in Snapchat earlier this year that also would have valued the company at $10 billion.

Snapchat and Kleiner Perkins declined to comment on the reported funding round.

Despite its lack of ads, investors have been attracted to the fact that Snapchat is wildly popular, particularly among young people.

CEO Evan Spiegel has said Snapchat's core audience is between 18 and 25 years of age -- a demographic advertisers covet. As of May, users were viewing over 1 billion stories and sharing more than 700 million snaps per day, up from just 350 million in October.