Herc Rentals (HRI) is in the equipment rental business to customers that want to build or repair something, asserts Tom Bishop, a leading specialist on small cap stocks and editor of BI Research.
It rents a variety of different boom/crane equipment, forklifts and other material handling equipment, scissor platforms, any kind of earthmoving equipment, paving equipment, pumps, fans, all manner of trucks and trailers, tools, generators and even equipment for making movies and TV shows and for putting on big events.
Herc reported Q4 adjusted EPS increased 82% to $2.46 on a 27% increase in rental revenue. However, due to severely reduced used equipment sales, because of the tight new equipment market, total sales were up just 11% to $578 million For the full year Herc more than doubled EPS to $7.52 on revenues of $2.07 billion.
Note that the company does not give EPS guidance, only EBITDA. And Herc took up its EBITDA forecast slightly for 2022 to a midpoint of $1.125 billion. Last year the Company spent $594 million on new equipment, compared to $344 million in 2020.
In 2022 the company plans to invest anywhere from $820 million to $1.12 billion in new additions to its fleet. Herc wisely put its orders for this equipment in early due to supply chain delays. Despite the increase in capex, Herc still posted $214 million of free cash flow in 2021.
The company now has 312 locations in North America — and growing. Herc made 7 acquisitions in Q4 and 11 acquisitions in all of 2021, adding 33 locations (not including the 4 locations acquired on 12/30/20). It also opened 5 greenfield locations in 2021. As of 12/31 Herc’s total fleet was approximately $4.4 billion at original equipment cost.
Recent strength has prompted Herc Rental to increase its dividend by 15% to $0.575 per quarter. So it’s all good here, and HRI remains a favorite for 2022.
