Herc Rentals (HERC) is in the equipment rental business to customers that want to build or repair something, explains small cap specialist Tom Bishop, 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, and generators.

The company even rents equipment for making movies and TV shows and for putting on big events. Herc Rentals has over $5.4 billion of equipment to rent as of 9/30 and 351 locations (up from 313 earlier).

The company reported a very strong Q3; revenues soared an impressive 35% to $745 million and adjusted EPS rocketed ahead 44% to $3.42. You don’t see that kind of growth every day in the current environment. Also management raised its guidance slightly for the year.

It now expects EBITDA of $1.22 to $1.25 billion up from $1.195 to $1.245 billion previously. It also upped the low end of its guidance range for 2022 capital expenditures for rental equipment by $100 million to a range of $1.0 to $1.10 billion.

The company also plans to continue buying equipment next year. The adjusted EPS consensus for Q4 is $3.52 which would be up a whopping 43% vs. last year. For 2023 analysts are so far predicting an increase from $11.44 to $13.85.

In addition to the infrastructure bill, the company is benefiting from the Inflation Reduction Act (which was more about building out our renewable energy infrastructure), the CHIPS bill (to encourage more semiconductor production in the U.S., electric vehicle development, power grid modernization, renewable energy projects, and reshoring of manufacturing that had gone abroad).

The company is also benefiting from an increasing customer tendency favoring leasing rather than owning equipment. Plus, Herc is growing via M&A and new greenfield rental sites. The stock remains a buy in our model portfolio.

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