On Friday, JPMorgan (NYSE:JPM) initiated coverage on Herc Holdings Inc. (NYSE:HRI), assigning the stock a Neutral rating and setting a price target of $155.00. The firm highlighted Herc Holdings as the third-largest equipment rental company in North America, with a rental revenue market share of approximately 4% as of the fiscal year 2023. This positions Herc Holdings behind industry leaders United Rentals (NYSE:URI) and Sunbelt Rentals, which hold market shares of about 16% and 11%, respectively.
The company's management has set an ambitious goal to grow its rental revenue at a rate of 2.5 to 3.5 times the industry's expected growth rate of around 4% over the period from 2024 to 2026. This growth is anticipated to be fueled by investments in greenfield locations and technological advancements.
Herc Holdings aims to expand its presence in the top 100 metropolitan areas and invest in its rental fleet to enhance scale, which is expected to lead to improved fleet utilization, increased cross-selling opportunities, and stronger bargaining power with vendors. These factors are projected to contribute to margin improvements over time.
Herc Holdings is also looking to capitalize on the United States' infrastructure development initiatives. Mega projects related to infrastructure are foreseen to provide a substantial boost to the company's growth, with management estimating these could add approximately $300 million in annual rental revenue—a figure that represents more than 10% of the company's rental revenues from fiscal year 2023, excluding its Cinelease business.
The company has identified a significant opportunity in mega projects, which are expected to start in 2024 with budgets exceeding $250 million. These projects are likely to be supported by the Infrastructure Investment and Jobs Act (IIJA), the Inflation Reduction Act (IRA), the CHIPS Act, and private investments in supply chain relocation and electrification.
Herc Holdings estimates that such mega projects could generate approximately $2.3 billion in annual industry rental revenue, assuming an average project life of three years. With a market share opportunity of 10-15% for Herc Holdings, this could translate to an annualized rental revenue opportunity of around $300 million from these mega project starts in 2024.
In other recent news, Herc Holdings Inc. has made significant financial strides. The company increased its private offering of senior unsecured notes due 2029 from $500 million to $800 million, with the proceeds expected to repay part of the company's senior secured asset-based revolving credit facility. In addition, Herc Holdings reported record-high revenue and adjusted EBITDA for the first quarter of 2024, indicating a period of significant growth.
BofA Securities adjusted its outlook on Herc Holdings, raising the price target to $115 while maintaining an Underperform rating. This adjustment followed Herc's first-quarter results, which surpassed consensus estimates but were slightly below BofA Securities' expectations. The company reported overall revenue of $774 million, excluding contributions from Cinelease, and adjusted EBITDA of $329 million.
KeyBanc maintained its Sector Weight stock rating and price target for Herc Holdings, despite the company's first-quarter results surpassing consensus estimates. The firm expressed concerns over Herc Holdings' future communications with investors due to the pending sale of the Cinelease business.
These recent developments highlight Herc Holdings' financial performance and the attention it has received from analysts. The company's first-quarter performance showed resilience, with rate growth accelerating sequentially throughout the quarter. Herc Holdings also invested $148 million in mergers and acquisitions in the first quarter, adding 11 new locations and opening four additional greenfield locations.
InvestingPro Insights
As Herc Holdings Inc. (NYSE:HRI) gears up to seize growth opportunities in the equipment rental market, real-time data and insights from InvestingPro provide a nuanced view of the company's financial landscape. With a market capitalization of approximately $3.81 billion and a P/E ratio of 11.12, the company presents itself as a noteworthy player with a solid footing in the industry. The P/E ratio, which has slightly adjusted to 11.04 over the last twelve months as of Q1 2024, indicates a valuation that investors may find appealing when coupled with the company's strategic growth initiatives.
An InvestingPro Tip highlights that Herc Holdings has consistently raised its dividend for three consecutive years, which could be an attractive point for income-focused investors. Furthermore, the company's liquid assets surpassing short-term obligations suggest a robust financial position that may reassure stakeholders of its ability to meet immediate liabilities. Additionally, Herc Holdings has been profitable over the last twelve months and analysts predict profitability will continue this year, reinforcing confidence in its financial health.
Investors considering Herc Holdings may also want to explore the full suite of InvestingPro Tips, where 9 additional insights are available that could further inform investment decisions. For those looking to delve deeper into the company's analytics, a subscription to InvestingPro can be acquired with a special offer using the coupon code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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