Editor's Note

Hertz Global is racing towards a spinoff at the end of June and the CEO just fired up investors saying rental prices were rising.

Endo Pharmaceutical has refused to decline in the face of much pessimism and negativity in the biotech sector. Analysts are starting to talk about $40-$50 price targets given their $4.50 earnings guidance.


NEW BULLISH Plays

HTZ - Hertz Global Holdings - Company Profile

Hertz engages in the rental and lease of cars and trucks worldwide. It operates through four segments: U.S. Car Rental, International Car Rental, Worldwide Equipment Rental, and All Other Operations. The company rents various makes and models of cars, crossovers, and light trucks under the Hertz, Dollar, Thrifty, and Firefly car rental brands on hourly, daily, weekend, weekly, monthly, or multi-month basis through a network of company-owned rental airport and off-airport locations, as well as franchise locations. They operate 9,980 corporate and franchise locations. They also rent industrial equipment like earthmovers, air compressors, power generators, etc.

Last week Hertz shareholders formally agreed to the proposed split of hertz into two companies. Hertz Global will remain a car rental company. Herc Holdings will be the equipment rental company and trade under the symbol HRI.

The HRI stock will be spun off on June 30th to shareholders on June 22nd as a dividend distribution and therefore taxed at a lower rate when sold.

Shareholders will receive one HRI share for every five HTZ shares they own. Further complicating the process the HRI shares will have a reverse split of 15:1 on July 1st. The HRI portion of Hertz is significantly smaller and the reverse split is to boost the initial share price.

Activist investor Carl Icahn filed a notice with the SEC last week that he had increased his stake in Hertz to 15.24%. The Herc Holdings company will add three Icahn affiliate directors when the spinoff occurs.

With Icahn remaining on board the company should continue to be shareholder friendly. Icahn was instrumental in forcing the company split.

Also, the Hertz CEO was instrumental in producing a boost in the stock earlier in the week when he said the tide had turned for pricing in the rental car market. The fleet sizes had been reduced, everyone was running very tight and rental prices were rising. That fueled the sector on hopes of better earnings.

I am recommending we add the stock now and then decide on June 21st if we want to hold over the spinoff. Shares are right at resistance from March at $11.50. I would like to see them move over that level before we jump in.

With HTZ trade at $11.75

Buy HTZ shares @ $11.75, initial stop loss $10.45.

No options recommended because of the spinoff.



ENDP - Endo Pharmaceuticals - Company Profile

Endo develops, manufactures and distributes pharmaceutical products and devices worldwide. The market well known brands including Percocet, Lidoderm, Voltaren and a wide range of pain medications and testosterone replacement therapies.

Shares have declined from $26 last week to $14 in mid May. The company slashed full year guidance by -11% on revenue and -23% on earnings. The acceleration of the decline over the last several weeks has been in reaction to some generic competitors expected to receive approvals from the FDA soon.

The company also disclosed they were being investigated by the U.S. Attorney's Office for its relationship with pharmacy benefit managers or PBMs. In light of the improper relationship between Valeant and Philidor the USAO is investigating to see if the same problems exist at Endo. In November, Novartis had to pay a $390 million fine to settle charges it paid specialty pharmacies for illegal kickbacks in exchange for inducing patients to refill certain medications.

Endo was also under pressure as a result of the Valeant Pharmaceutical disaster and the overall decline in the biotech sector. However, now that the Valeant disaster has turned into old news, analysts are starting to talk about price targets on Endo in the $40-$50 range.

Full year earnings are expected to be in the $4.50 range and that means their current PE is around 4.5. That is ridiculously cheap. That guidance was reduced from $5.85-$6.20 because of some generics going off patent, specifically Voltarena Gel and Percocet. Investor Wally Weitz believes there is significant upside in Endo and they probably reduced guidance conservatively so they would makes sure to hit future earnings.

Earnings are August 4th.

The shares have rebounded from the May lows at $12.50 and refused to decline after the ASCO conference ended. I am putting an entry trigger on this position to make sure we buy on a breakout rather than a breakdown.

With a ENDP trade at $18.35

Buy ENDP shares, currently $17.71. Initial stop loss $15.95.

No options recommended with $20 the closest OTM strike.



NEW BEARISH Plays

No New Bearish Plays