The return of travel season coincides with several fundamental factors this year that will substanti

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Hertz is poised for a long run of earnings and revenue growth as it realizes the benefits of a big acquisition and unloads a trunk full of opportunities. Why the shares could rise 70% in the next year or two.
the industry's largest publicly traded company. Domestic online air ticket sales leisure travel is expected to hit a record high this year, says the U.S. Travel Association, while inbound travel–visitors from abroad–also rises.
The return of travel season coincides with several fundamental factors this year that will substantially online air ticket sales improve Park Ridge, N.J.-based Hertz's (ticker: HTZ) longer-term earnings and stock performance prospects. Consolidation should bring firmer pricing to the industry and a recent acquisition should allow Hertz to pursue new growth opportunities across more brands.
In the past decade, the number of major rental-car companies has dropped from six to three, and the survivors now control more than 90% of the market. Privately held Enterprise has the largest fleet, 1.3 million vehicles; Hertz is No. 2 at 700,000; and famously second-best Avis Budget
After a run of declines, pricing is on the upswing, aided by Hertz's $2.3 billion acquisition of Dollar Thrifty online air ticket sales late last year. Rate Highway, which tracks auto-rental pricing, forecasts 1% to 7% increases in major markets next year. In the first quarter, Hertz-brand rental rates at airports rose 5.3%.
Hertz CEO Mark Frissora won't speculate about this year's rental-car prices, and indeed, Hertz is guiding for flat pricing. But every 1% gain in pricing boosts pretax profit by roughly 6%. "Right now, all the competitors are raising prices, and it's going to be like this for the next 12 months. It's a pretty decent environment," says Frissora, who joined Hertz from auto-parts giant Tenneco
Profits are headed higher. In 2012, Hertz earned $901 million pretax, or a net $1.33 a share, on $9.02 billion in revenue. This year, the company expects to make $1.27 billion to $1.34 billion in pretax profit, or a net $1.82 to $1.92 a share, on $10.85 billion to $10.95 billion in revenue. Frissora says that the company's guidance usually is "conservative."
Key to Hertz's growth is the expansion of its off-airport business, which has lower costs and where customers typically rent cars for much longer. This $11 billion market, dominated by Enterprise, is growing at a double-digit online air ticket sales clip.
Frissora hopes to double Hertz's current share of this market to about 24%. One area of focus for Hertz is the insurance-replacement market, in which the insurers pay all or part of an auto rental while the customer's car is being fixed. Hertz also plans to add 300 non-airport locations annually to its current 2,600.
Like airlines, Hertz is pushing "virtual video kiosks." At airports, online air ticket sales these small towers let customers rent cars from an actual Hertz employee appearing on a screen. Travelers can rent cars 24/7 and use the devices when lines are long. The towers can also be found at many Lowe's
Technology can help in other ways, too. Hertz On Demand, a car-sharing service that Hertz runs on college campuses, lets members go online to retrieve a number or activate a key fob to open a car. "The car actually becomes the point of sale," says Frissora. This year, the company will roll out a similar technology online air ticket sales for Hertz off-airport rental customers, showing all available Hertz and Dollar Thrifty cars in the neighborhood. "They go to the car, get in, and drive away," he explains.
The acquisition of Dollar Thrifty, which now kicks in about $1.6 billion in rental-car revenue, offers Hertz the chance to expand faster by broadening its appeal beyond its premium brand. "The value segment of the market is growing the fastest, by far," says Chris Brown, executive editor of Auto Rental News. Hertz should be able to help Dollar Thrifty build cross-marketing online air ticket sales partnerships with hotels, airlines, and affinity groups. Hertz—"the king of partnerships" as Frissora puts it—gets 45% of its business through online air ticket sales such relationships. Dollar Thrifty has no such agreements.
Hertz forecasts that revenue, which rose 8.7% last year to $9.02 billion, will climb as much as 13.5% annually through 2015, and that earnings in 2015 will come in at $3.10 to $3.30 a share. Apply last week's multiple of 13 times current earnings to that forecast, and the stock is worth $43—70% above last week's close around $25.
In any event, this is a different Hertz than the one private-equity investors took public in 2006 at $15 a share. This month, those investors sold their remaining shares. They had taken on a huge amount of debt to buy Hertz from Ford Motor
(F) for $15 billion in 2005. Then came the financial crisis. Hertz stock plunged from $27 to as low as $1.55. Hertz fired employees, shut locations, and shrank its fleet. Excluding what it owes for its vehicles, Hertz has $6.5 billion in corporate debt, which it plans to reduce to win an investment-grade rating. One source of funds could be the sale of its equipment-rental business.
Hertz also faces big challenges online air ticket sales in replacing and disposing of cars. No one's quite sure how Japan's newly cheap yen will affect the prices of new and used vehicles. But thanks to purchases like Dollar Thrifty, the push beyond airports, and its new technology, Hertz is "less cyclical, almost recession-proof," the CEO asserts. "It's a unique value proposition." And the summer driving season has just started.
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