Hertz (HTZ) stock is in freefall this morning, down some 32% in pre-market trading, after 3Q EPS and sales miss analyst estimates.

The rental-car company reported 3Q EPS of $1.58, wildly missing consensus est. $2.73 (range $2.34-$3.03), as a result of a surge in its depreciation costs, while 3Q revenue came in at $2.54 billion, below the estimate $2.59 billion. Worse, Hertz now sees 2016 adjusted Ebitda of $575m-$625 million, far below its prior guidance of $850m-$950m post-separation (Aug. 8), and also guided to 2016 adj EPS of 51c-88c, a fraction of its former guidance of $2.75-$3.50; and far below the Wall Street estimate of $2.92.

The car-rental company blamed "a substantial depreciation adjustment, particularly on compact and mid-sized vehicles," near the close of the quarter, but also says rental volume was at the low end of expectations. We assume this means that the long-overdue repricing of car assets on balance sheets, first at fleet companies and soon everywhere else, is finally materializing.

The unexpected surge in depreciation is shown in the table below:

However, it was not just D&A: In the report, HTZ said its Q3 EBITDA was $329 million versus $430 million in the same period last year, a decline of $101 million.

"We are making progress in foundational aspects of our long-term business improvement plan, implementing new systems, improving customer service levels and launching new products," said John Tague, president and chief executive officer. "However, our near-term financial performance continues to be uneven.A customary vehicle depreciation rate review near the close of the third quarter resulted in a substantial depreciation adjustment, particularly on compact and mid-sized vehicles, that together with rental volume at the low end of our expectations as well as higher net operating and administrative expenses impacted our performance.

"While we remain on pace to deliver $350 million of cost reduction in 2016, we fell short from a timing perspective on our internal stretch target for cost reduction.Considering this and the potential for an additional depreciation rate adjustment in the fourth quarter, we are updating our 2016 outlook and taking incremental actions to reduce costs and drive revenue."

Spending was higher as well as HTZ says it "fell short from a timing perspective," on its internal stretch target for cost reduction. The 3Q performance has the company lowering 2016 guidance as it says it's "taking incremental actions to reduce costs and drive revenue." HTZ off 28% to $25.87 after-hours and finished the regular session with a 37% YTD loss.

As a result of the abysmal earnings and guidance, the stock was trading some 33% lower in the premarket, set to open at a more than 7 year low.

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As usual, the sellside was unable to see any of this in advance, and as a result the downgrades are coming in hot and heavy this morning starting with DB, which moments ago downgraded the stock to Hold on "earnings visibility whiteout."

This is what DB analyst Chris Woronka said:

3Q16 Report Nothing Short of a Debacle; Downgrade to Hold, PT to $24 (-59%)

We are downgrading HTZ from Buy to Hold and cutting our PT from $59 to $24 (-59%). The primary reason for our downgrade is a belief that the stock will reflect a newfound lack of confidence in earnings visibility and the company’s ability to provide achievable guidance. After the close tonight, HTZ reported weak 3Q results and slashed FY16 guidance. Although a guide-down in full-year U.S. revenue expectations is a negative in and of itself, the larger issue is related to fleet depreciation; HTZ cited a “downward revision of forward projections of residual values based on third party data.” At this point, there are more questions than answers, and our view is that it is now extraordinarily difficult for investors to have conviction in continued progress on the turnaround story given these latest disappointing and surprising developments.

Recap of 3Q16 Results & Segment Highlights

HTZ reported 3Q16 Adj. EPS of $1.58 vs. our estimate of $2.80 and consensus of $2.73 (HTZ does not provide quarterly guidance). Adj. EBITDA came in at $329m vs. our estimate of $467m and consensus of $482m. Total revenues were $2.54bn, in line with our estimate; consensus was $2.59bn. HTZ’s U.S. RAC unit reported Adj. EBITDA of $199m in 3Q16 vs. $284m in the year-ago quarter; our forecast was $317m. RPD (pricing) fell 2.9% while volume rose 0.9%; HTZ suggested a 1% decline in RPD after comparability adjustments within the Dollar Thrifty fleet. On a two-year stacked basis, RPD was -5.0% in 3Q16 vs. -8.9% in 2Q16 and -11.7% in 1Q16. Net fleet costs per month were $278 (+12% y/y). U.S. RAC margins were down 470bps y/y. HTZ’s Adj. EBITDA for its International rental car ops fell 7% y/y, to $151m; our forecast was $165m. Volumes rose 2.2% and pricing fell 1% (ex-FX).

Slashes Guidance; Hard to Have Conviction, Though, as Visibility Feels Low

HTZ’s FY16 Adj. EBITDA guidance goes to $575-$625m, down $300m (33%) at the midpoint, vs. prior $850-$950m. Adj. EPS guidance is now $0.51-$0.88, down $2.43 (78%) at the midpoint, vs. prior $2.75-$3.50. HTZ now sees U.S. car rental revenues down 2-3% vs. flat to (1.5%) previously; U.S. net depreciation per month/unit was moved to $295-$300 (+$5 at the high end).

Our New Estimates and Price Target; Risks

We have cut our FY16 Adj. EBITDA & EPS forecasts to $578m and $0.66 from $838m and $2.92m. We have cut our FY17 Adj. EBITDA & EPS forecasts to $565m & $1.06. Our PT goes to $24 from $59 (-$35, or 59%) and is now based on 7.0x our 2017E FCF/share estimate. Previously we assumed an 8.5x multiple; we believe low visibility/conviction in estimates warrants a lower target multiple. Key upside risks now include potential actions by large shareholders and/or an improved operating environment. Downside risks include further adjustments to residuals or stalled progress on the turnaround.