On Wednesday, BofA Securities updated its outlook on shares of Herc Holdings (NYSE:HRI) Inc (OTC:HERC), increasing the price target to $125 from the previous $115, while maintaining an Underperform rating on the stock.
The revision follows Herc's second-quarter earnings report, which fell short of consensus estimates. Herc's total revenue, excluding its Cinelease business, was reported at $819 million, a 2% miss from the consensus. Adjusted EBITDA, also excluding Cinelease, was at $352 million, 5% below the consensus of $370 million.
Despite the lower-than-expected results, Herc reaffirmed its guidance for 2024, indicating mergers and acquisitions (M&A) as a key strategy to offset slower local growth, which has been impacted by rising interest rates.
The company has already invested $290 million in M&A activities this year, marking a 7% increase year-over-year. Notably, Herc has not allocated any funds for share repurchases, a trend that is expected to continue as the company reallocates capital to stimulate growth.
The analyst pointed out that Herc's second half of the year typically sees an increase in activity, but the current weakening local economic conditions may challenge the company's ability to achieve the expected improvement in flowthrough.
The report also highlighted that while the rental market remains promising, the preference is to engage with this market through United Rentals (NYSE:NYSE:URI), which carries a Buy rating, rather than Herc, due to the different free cash flow profiles between the two companies.
In conclusion, while the analyst remains positive on the overall rental market, the recommendation suggests a cautious approach to Herc's stock, considering the company's recent performance, ongoing economic challenges, and strategic choices.
InvestingPro Insights
In light of BofA Securities' updated outlook on Herc Holdings Inc (OTC:HERC), insights from InvestingPro can provide additional context for investors. An InvestingPro Tip highlights that the company's stock is currently in oversold territory according to the Relative Strength Index (RSI), which could suggest potential for a rebound. Herc Holdings is trading at a high earnings multiple, indicating that investors are willing to pay a premium for its earnings compared to the industry average.
InvestingPro Data reveals that Herc Holdings has been profitable over the last twelve months, which aligns with the company's reaffirmation of its 2024 guidance despite recent earnings misses. Moreover, the company has experienced a significant price uptick over the last six months, reflecting investor optimism in its long-term growth strategy, which includes an emphasis on mergers and acquisitions.
For investors seeking a deeper dive into Herc Holdings' financial health and future prospects, InvestingPro offers additional tips, including analysis on the company's free cash flow yield and profitability predictions for this year. In total, there are six additional InvestingPro Tips available for Herc Holdings at https://www.investing.com/pro/HERC. To access these insights and more, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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