BofA Securities has adjusted its outlook on Herc Holdings (NYSE: NYSE:HRI), increasing the price target to $150 from $125, while continuing to advise an Underperform rating on the stock.
The revision follows Herc's third-quarter results, which surpassed the modest expectations set by the market, leading to a significant 17% surge in the company's stock value on the day of the announcement, in contrast to a stagnant S&P 500 index.
The equipment rental company reported quarterly revenue, excluding its Cinelease division, at $947 million, which is roughly 2% higher than consensus estimates. Adjusted EBITDA, also excluding Cinelease, reached $445 million, marginally surpassing the expected $439 million.
These figures reflect a robust performance amidst a period where the market had braced for a potential downturn due to concerns about project delays, the timing of interest rate cuts, and a slowdown in new project initiations.
Looking ahead, Herc Holdings has updated its 2024 guidance, now forecasting revenue growth between 9.5% and 11%, an increase from the previously estimated 7% to 10%. This outlook is partly fueled by the company's aggressive mergers and acquisitions strategy, which has seen $567 million in expenditures to date.
In other recent news, Herc Holdings reported record third-quarter revenue, with total revenue rising 6% year-over-year to $965 million, surpassing consensus estimates. However, the company fell short of earnings per share (EPS) estimates with an adjusted EPS of $4.35, below the expected $4.55. One of the significant contributors to this record revenue was the company's equipment rental segment, which saw a 13% increase to $866 million compared to the same period last year.
Despite these gains, higher operating costs and interest expenses impacted the company's profitability. Direct operating expenses rose to 38.6% of equipment rental revenue, while interest expenses increased to $69 million due to higher borrowings.
In light of recent developments, Herc Holdings has adjusted its full-year guidance for equipment rental revenue growth to 9.5-11%, an increase from the previous 7-10% range. The company's adjusted EBITDA forecast remains at $1.55 billion to $1.60 billion.
While the company continues to experience strong rental demand, the ability to manage expenses will be crucial for improving profitability.
InvestingPro Insights
Herc Holdings' recent performance and updated guidance align with several key metrics and insights from InvestingPro. The company's market cap stands at $5.64 billion, reflecting its significant presence in the equipment rental industry. With a P/E ratio of 13.83, Herc appears to be trading at a reasonable valuation relative to its earnings, especially considering its strong recent performance.
InvestingPro data shows that Herc's revenue for the last twelve months as of Q3 2024 was $3.45 billion, with a growth rate of 6.55%. This aligns with the company's updated guidance for 2024, which projects revenue growth between 9.5% and 11%. The company's profitability is also noteworthy, with an operating income margin of 20.44% for the same period.
Two relevant InvestingPro Tips highlight Herc's recent market performance: the stock has shown a "Significant return over the last week" and is "Trading near 52-week high." These tips corroborate the 17% stock surge mentioned in the article following the company's Q3 results. Additionally, InvestingPro notes that Herc "Has raised its dividend for 3 consecutive years," which may appeal to income-focused investors.
For readers interested in a more comprehensive analysis, InvestingPro offers 11 additional tips for Herc Holdings, providing a deeper understanding of the company's financial health and market position.
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