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mid-cap

One Equipment Rental Service Provider Stock to Book Profit on – HRI

Jan 30, 2023 | Team Kalkine
One Equipment Rental Service Provider Stock to Book Profit on – HRI

Herc Holdings Inc.

HRI Details

Herc Holdings Inc. (NASDAQ: HRI) is an equipment rental company that was spun out of Hertz Global in 2016.

Financial Results for Q3 FY22

  • The total revenue increased by approx. 35.4% to USD 745.1 mn in Q3 FY22 as compared to the total revenue of USD 550.4 mn in Q3 FY21. The YoY increase of USD194.7 Mn was primarily related to an increase in equipment rental revenue of USD186.6 Mn as well as a rise in sales of rental equipment of USD4.9 Mn.
  • The liquidity of the group was higher, where the net cash provided by operating activities was reported at USD 623.2 mn during Q3 FY22 against the cash flow from operating activity of USD 503.2 mn in Q3 FY21.
  • The adjusted EBITDA margin increased by 160 bps to 46.3% in Q3FY22.
  • Net Income climbed to USD 101.4 mn in Q3FY22 as compared to USD 72.3 mn in Q3 FY21.

Key Update

  • The company declared a quarterly dividend of USD 0.575 per share.

Outlook

For full year 2022, the company is expected to post adjusted EBITDA between USD1.220 billion to USD1.250 billion. Also, net rental equipment capital expenditures guidance has been given at USD1.00 billion - USD1.10 billion.

Key Risks

The company is exposed to a slowdown in economic activity along with adverse currency movement. Another key risk factor for the group is increasing competition.

Valuation Methodology: EV/Sales-Based Relative Valuation (Illustrative)

Stock Recommendation

The stock is trading above the average price of the 52-week low-high range for the stock at USD 83.43- USD 175.00, respectively.

The stock has been valued using EV/Sales multiple-based illustrative relative valuation, and the target price so arrived reflects a fall of low double-digit (in % terms). A slight discount has been applied to EV/Sales Multiple (NTM) (Peer Average) considering the current trading levels and risks associated.

Resultantly, it is prudent to liquidate the stock at the current levels.

Hence, a ‘Sell’ rating has been provided on the stock at the current market price of USD 153.28 per share, as of 30th January 2023 at 08:34 AM PST.

Technical Overview:

Daily Price Chart

Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for share price chart and stock valuation is based on January 30, 2023. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

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