Feature Article 841

A Post-Pandemic Growth Machine

The equipment rental business is returning to fantastic health, according to the American Rental Association (ARA). Last year, the pandemic threw a wrench into the industry, causing an 11.7% revenue decline. Now for this year, the business is coming back, expected to grow sales to more than $50.2 billion. Looking forward, the ARA is forecasting revenues reaching $55.9 billion in 2022 and $60.5 billion in 2024.

It’s important to note that the forecast does include the latest COVID-19 economic relief bill passed in December, but it does not reflect funds that will trickle down to it from the $1.9 trillion American Rescue Plan being proposed by the Biden administration.

All in all, it’s expected that average rental rates as well as fleet utilization should add to the bright revenue picture.

And that’s great news for Herc! With 56 years in the equipment rental business, but just 4% market penetration, the growing industry presents an incredible opportunity to expand by acquiring the company’s less successful competition. Right now, Herc ranks as the #6 equipment rental company in the world, according to Insider Monkey. It is also one of the oldest. The industry began in 1955, just 65 years ago, but is now worth around $100 billion, worldwide.

And Herc is ready to move up!

As you can see from this picture, the company’s revenues are well-diversifed.

Fleet Composition at OEC

Source: ir.hercrentals.com

While its mainstream businesses are all rising as this pandemic subsides, Herc is also seeing a nice boost in entertainment rentals, as well as growth coming from urban rentals.

And its market continue to rebound, as you can see in this chart of revenue growth.

Equipment Rental Market

1. Source: ir.hercrentals.com

The shares of Herc look very attractive, and we aren’t the only ones to think so! Zack’s recommends the stock as a ‘Strong Buy’, based on sales efficiency, revenue and earnings growth, and upwardly revised earnings estimates. The shares are currently rated ‘Overweight’ at KeyBanc and Barclays. Some estimates for the share price are as high as $143. At this level, the shares appear undervalued.

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