Herc Holdings Inc.

HRI Details

Herc Holdings Inc. (NYSE: HRI) is a leading equipment rental supplier with approximately 350 locations in North America. The company operates through its Herc Rentals Inc. subsidiary. It offers a broad portfolio of equipment for rent, including aerial, earthmoving, material handling, trucks and trailers, air compressors, compaction, and lighting.

Financial Results for 3Q’FY22

• Equipment rental revenue stood at USD 706.2 million, and total revenues stood at USD 745.1 million in 3Q’FY22, versus USD 519.6 million and USD 550.4 million, respectively, in 3Q’FY21, primarily due to better demand for equipment rental services across geographic regions. The rental revenue grew 35.9% YoY in 3Q’FY22. The average fleet grew 35.0% YoY to USD 5.3 billion.
• Adjusted EBITDA grew 40.3% YoY to USD 345.0 million, and adjusted EBITDA margin increased 160 basis points to 46.3% in 3Q’FY22.
• The net income stood at USD 101.4 million in 3Q’FY22 versus USD 72.3 million in 3Q’FY21, while adjusted net income increased 42.2% to USD 103.4 million, or USD 3.42 per diluted share, versus USD 72.7 million, or USD 2.38 per diluted share in 3QFY21.

Outlook

The company updated its FY22 adjusted EBITDA guidance range and guidance for net rental capital expenditures. The adjusted EBITDA indicates an increase of 36-40% versus the full-year 2021 results. Adjusted EBITDA is expected to be USD 1.22-USD 1.25 billion, and net rental equipment capital expenditures are expected to be USD 1.00-USD 1.10 billion. The demand from customers is likely to continue in 2022. Amid the steady statement of new industrial, alternative energy and infrastructure projects, the company is well-positioned to generate continued revenue growth in 2023 and beyond.

Key Risks

A slowdown or adverse economic conditions could adversely impact the business. The company's operations expose it to numerous national, state, local and international laws and regulations. Further, changes in government regulation could alter its business practices or profitability. The equipment rental industry is highly fragmented and competitive, which could adversely affect its rental volumes and depress the prices it charges to customers.

Valuation Methodology: Price/Earnings Per Share Based Relative Valuation (Illustrative)

Stock Recommendation

Over the last one month, the stock has given a return of ~12.99%.

The stock has been valued using P/E 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 P/E Multiple (NTM) (Peer Average), considering elevated debt-to-equity ratio of 2.56x in 3Q’FY22 versus industry median and current trading levels.

Considering the resistance and target level achievement, current trading levels and risks associated, it is prudent to book profits at the current levels. Hence, a ‘Sell’ rating has been provided on the stock at the current market price of USD 128.13 per share, as of November 07, 2022, at 07:15 AM PST.

Price Chart

HRI Price Chart. Source: REFINITIV, Analysis by Kalkine Group

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.

Herc Holdings Inc. (HRI) is a part of Kalkine’s Global Big Money Product

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for share price chart and all other data such as stock price performance is based on November 4, 2022. 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.