On Wednesday, Oppenheimer reinstated coverage on McGrath Rentcorp (NASDAQ:MGRC) shares, assigning the stock an Outperform rating and setting a price target of $120.00. The move comes after WillScot Holdings (NASDAQ:WSC) ended its acquisition bid for McGrath on September 18, 2024, following a review by the Federal Trade Commission. As a result of the terminated deal, McGrath Rentcorp will receive a $180 million cash termination fee from WillScot Holdings.
The analyst from Oppenheimer expressed a positive outlook on McGrath Rentcorp's fundamentals, particularly highlighting the company's Mobile Modular segment. This division, known for its leadership in modular classroom rentals, is expected to benefit from the trend of manufacturing re-shoring and the inflow of funds from an infrastructure bill. While non-residential construction poses a cyclical challenge, the analyst notes that a lower interest rate environment forecasted for as soon as 2025 could prove advantageous.
With McGrath Rentcorp once again operating independently, the analyst suggested that the company might attract interest from other potential acquirers. The $120 price target set by Oppenheimer is based on a 9.7x enterprise value to EBITDA (EV/EBITDA) multiple on the firm's projected 2025 adjusted EBITDA. This valuation is in line with McGrath's three-year historical average on forward twelve months (FTM) adjusted EBITDA.
In other recent news, McGrath RentCorp and WillScot Holdings Corporation mutually agreed to terminate their planned merger, with McGrath set to receive a termination fee of $180 million. Amidst this development, McGrath reported mixed second-quarter results for 2024, with rental and sales revenues increasing by 3% and 14% respectively.
However, decreases were observed in the Portable Storage and TRS-RenTelco divisions. McGrath also announced a quarterly cash dividend of $0.475 per common share, marking the 33rd consecutive year of dividend increases.
In response to the termination, both companies increased their share repurchase programs, with McGrath expanding its program to 2 million shares and WillScot to $1 billion. McGrath's board also saw a change with the departure of Elizabeth A. Fetter, the company's first female independent director, after more than ten years of service. These recent developments reflect the strategic initiatives and financial performance of McGrath RentCorp.
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