On Wednesday, Baird maintained a Neutral rating on Herc Holdings (NYSE:HRI) while significantly increasing the price target from $165.00 to $267.00. The adjustment follows the company's third-quarter earnings, which led to the reaffirmation of its EBITDA guidance. This guidance was supported by recent mergers and acquisitions as well as some financial benefits from hurricane cleanup efforts.
The analyst at Baird highlighted that, despite maintaining a Neutral stance, they have added a 'Fresh Pick' designation to Herc Holdings. The firm believes that Herc Holdings is poised for a catch-up trade that could see its valuation move closer to that of United Rentals (NYSE:URI), potentially driving the stock price up by 40% by the end of the year.
This potential increase is attributed to a combination of earnings performance and a possible market reevaluation of the company's stock.
Baird also noted that the current pro-cyclical sentiment, which is likely influenced by the upcoming election, could serve as an additional catalyst for the stock. However, they emphasized that Herc Holdings would not be directly affected by trade or tariff policies.
While the near-term outlook for the company appears positive, the analyst cautioned that the fundamentals, particularly in the non-residential sector, may continue to deteriorate into the first half of 2025. The firm suggests that this issue will be addressed in the following year.
In other recent news, Herc Holdings reported record third-quarter revenue of $965 million, marking a 6% year-over-year increase, but fell short of earnings per share estimates with an adjusted EPS of $4.35, below the expected $4.55. The equipment rental segment, a significant revenue contributor, saw a 13% increase to $866 million compared to the same period last year.
Despite these gains, higher operating costs and interest expenses impacted profitability.
BofA Securities recently adjusted its outlook on Herc Holdings, raising the price target to $150 from $125, while maintaining an Underperform rating on the stock. This revision followed Herc's robust third-quarter results, which surpassed market expectations.
Herc Holdings has updated its 2024 guidance, now forecasting revenue growth between 9.5% and 11%, up from the previously estimated 7% to 10%. This outlook is partly due to the company's aggressive mergers and acquisitions strategy, which has seen $567 million in expenditures to date.
Despite these developments, the company's adjusted EBITDA forecast for 2024 remains at $1.55 billion to $1.6 billion. These are the recent developments impacting Herc Holdings Inc.
InvestingPro Insights
Recent data from InvestingPro provides additional context to Baird's analysis of Herc Holdings (NYSE:HRI). The company's stock has shown remarkable performance, with a 1-year price total return of 88.84% as of the latest data. This aligns with Baird's optimistic view on the potential for a catch-up trade.
InvestingPro Tips highlight that HRI has raised its dividend for 3 consecutive years, which may appeal to income-focused investors. Additionally, the stock is trading near its 52-week high, with a price at 98.17% of its 52-week high, supporting Baird's bullish outlook.
However, investors should note that the stock's RSI suggests it may be in overbought territory, which could indicate a potential for short-term pullback. The company's P/E ratio of 13.83 and adjusted P/E ratio of 16.21 for the last twelve months as of Q3 2024 provide insight into its current valuation relative to earnings.
For those interested in a deeper analysis, InvestingPro offers 13 additional tips for Herc Holdings, providing a more comprehensive view of the company's financial health and market position.
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