Sector Snap: Rental car companies

After the market closed Wednesday, Hertz reported an 89 percent drop in third-quarter earnings and said the company no longer expects to meet its earnings guidance for the year. The company also announced a plan--initiated in September--to cut an additional 1,400 employees, close 80 locations and reduce the size of its vehicle fleets. Hertz employs 30,000 people.

Soleil Securities Group analyst Michael Millman maintained a "Buy" rating on the stock, however. He noted that the company believes it has sufficient debt capacity to meet fleet needs through mid-2010. Millman also said Hertz is expected to announce a major push into the car-sharing business.

But Goldman Sachs analyst Christopher Agnew, who has a "Neutral" rating on the stock, said the car rental industry is over-fleeted, which will continue to hurt profitability.

Hertz shares fell 83 cents, or 12.5 percent, to close at $5.83.

Dollar Thrifty also warned investors Wednesday that it expects to book losses for the fourth quarter and the full year, due to worsening economic conditions and ongoing problems in the airline and automotive industries.

However, the company said its third-quarter profit rose 67 percent as lower losses from derivatives offset a drop in vehicle rental revenue.

"We think (Dollar Thrifty) will report losses thru 2010, but should be able to manage its liquidity requirements," said Soleil's Millman, who maintained a "Hold" rating on the stock.

Millman said he believes the company would favor a merger with Chrysler LLC/General Motors Corp. to reduce uncertainty and help diversify its fleet. GM is talking with Chrysler majority owner Cerberus Capital Management LP acquiring Chrysler.

Dollar Thrifty shares dropped 35 cents, or 18 percent, to $1.58 in afternoon trading. Meanwhile, shares of Avis Budget Group Inc. closed down a penny at $1.94.