Asset-light Models And Urbanization Will Drive Rental Demand

Key Takeaways

• Proprietary technology, specialty fleet integration, and sustainability-forward investments position Herc to outperform peers in cross-selling, margin expansion, and premium project share.
  
• Industry trends toward rental, stricter regulations, and labor shortages amplify Herc's competitive advantages in recurring revenue, pricing power, and digitized, cost-efficient operations.
  
• Herc faces risks from overexposure to cyclical markets, high leverage, technological shifts, sustainability demands, and intense competition, all threatening demand, margins, and market share.

Catalysts

Operates as an equipment rental supplier in the United States and internationally.

• While analyst consensus expects significant synergy from the H&E Equipment Services acquisition, a more bullish view is that Herc's unmatched specialty fleet integration and proprietary tech platform will enable materially higher than expected cross-selling, driving step-changes in fleet utilization, revenue growth, and net margins as combined capabilities outpace the industry.
  
• Analysts broadly agree that Herc can capture 10% to 15% share of mega project activity, but this likely understates Herc's positioning-given its industry-best safety record, deep customer relationships in high-growth sectors, and ability to bundle specialty solutions, Herc could swiftly exceed 15% share, pushing revenue growth and profitability above current forecasts.
  
• The accelerating trend toward asset-light models and the inevitable shift from equipment ownership to rental are still in their early stages; Herc's scale, modernized fleet, and strong specialty offering mean it stands to win a disproportionate share of recurring, high-margin rental demand, with compounding effects on both revenue consistency and EBITDA margin expansion.
  
• New and stricter environmental regulations will rapidly devalue older, noncompliant fleets, giving Herc-with its aggressive investment in emissions-compliant and sustainability-forward equipment-a decisive advantage in capturing premium pricing and share in eco-focused projects, driving margin uplift.
  
• With labor shortages intensifying and urbanization accelerating, Herc's digital platform and telematics-enabled fleet will pull in additional customers who rely on outsourced, tech-driven solutions, amplifying fleet productivity, reducing operating costs, and unlocking structurally higher long-term earnings.

Herc Holdings Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Herc Holdings compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Herc Holdings's revenue will grow by 22.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 3.5% today to 10.2% in 3 years time.
• The bullish analysts expect earnings to reach $684.2 million (and earnings per share of $20.18) by about July 2028, up from $128.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 15.9x on those 2028 earnings, down from 29.8x today. This future PE is lower than the current PE for the US Trade Distributors industry at 20.1x.
• Analysts expect the number of shares outstanding to grow by 0.36% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.86%, as per the Simply Wall St company report.

Herc Holdings Future Earnings Per Share Growth

Risks

• Persistent elevated interest rates continue to weaken local, non-residential project starts and keep interest rate-sensitive jobs on hold, which could depress equipment rental demand and revenue growth, especially as Herc remains overexposed to these regional cycles.
  
• Herc's ongoing high leverage and the substantial debt incurred from the H&E acquisition place the company at risk of increased interest expense and reduced net earnings during potential macroeconomic slowdowns, particularly if free cash flow or revenue synergies fall short of targets.
  
• Accelerating industry automation and digitalization may cause customers in key segments to shift capital spending from traditional equipment rentals to newer, technology-driven solutions, which could result in declining equipment utilization rates and pressure on both revenue and net margins if Herc does not keep pace with technological advancements.
  
• Industry-wide ESG and sustainability pressures could accelerate a shift away from fossil-fuel-powered equipment toward electric or hybrid alternatives, and if Herc underinvests or lags in updating its fleet, this may lead to underutilization, increased capital expenditures, and impairments on existing assets, ultimately weighing on returns and earnings.
  
• Aggressive competition from larger and more technologically advanced peers, combined with potential margin compression from pricing pressure, consolidation, and Herc's lagging customer experience enhancements, threaten market share and the company's ability to maintain profit margins over the long term.

Valuation

• The assumed bullish price target for Herc Holdings is $285.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Herc Holdings's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $285.0, and the most bearish reporting a price target of just $100.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $6.7 billion, earnings will come to $684.2 million, and it would be trading on a PE ratio of 15.9x, assuming you use a discount rate of 10.9%.
• Given the current share price of $133.76, the bullish analyst price target of $285.0 is 53.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.