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On Wednesday, KeyBanc Capital Markets maintained a Sector Weight rating on Herc Holding (NYSE:HRI), indicating a neutral stance on the equipment rental company’s stock. The company’s shares, currently trading at $102.34, have declined over 45% year-to-date according to InvestingPro data, and are now trading near their 52-week low of $96.19. Analysts at KeyBanc highlighted challenges faced by Herc Holding in the first quarter of 2025, noting that the company’s shares underperformed due to missed expectations in EBITDA and rental revenue.
Herc Holding’s margins in the recent quarter were impacted by a mix of unfavorable factors, including a less advantageous product mix, one fewer calendar day, and diminished fixed cost absorption. Despite these challenges, the company maintains a gross profit margin of 37.8% and receives a "GOOD" overall financial health score from InvestingPro, which offers comprehensive analysis through its Pro Research Reports covering 1,400+ US stocks. The company also faced tough comparisons to the previous year, as the local account downturn did not start until the second quarter of 2024.
Management at Herc Holding has observed a split demand environment. While national accounts are growing, driven by substantial mega-project activities, local accounts are struggling under the weight of high interest rates. Despite management’s optimism for better dollar utilization and a return to normal EBITDA flow-through, KeyBanc’s analysts have chosen to remain cautious due to limited visibility into local account activity.
The analysts’ cautious stance is further supported by high levels of macroeconomic uncertainty and recent weak performances in industry indicators such as the Architectural Billings Index (ABI) and the Dodge Momentum Index. These factors contribute to the difficulty in predicting the bottom of the nonresidential construction cycle, especially for local contractors.
KeyBanc’s analysis suggests that a conservative approach may be prudent for investors considering the current market conditions and industry challenges. The firm’s Sector Weight rating indicates that they do not recommend Herc Holding stock more or less than other stocks in the sector at this time. However, InvestingPro analysis suggests the stock is currently undervalued, with analysts maintaining a consensus price target significantly above current levels. For detailed valuation metrics and 8 additional ProTips about HRI, subscribers can access the full InvestingPro dashboard.
In other recent news, Herc Holdings reported its first-quarter 2025 earnings, revealing a notable shortfall in earnings per share (EPS) compared to analyst forecasts. The company posted an EPS of $1.30, significantly below the expected $2.24, despite achieving a slight revenue beat with $861 million, surpassing the forecasted $847.71 million. This earnings miss was primarily attributed to the high transaction costs associated with the acquisition of H&E Equipment Services, which amounted to $74 million. Despite the earnings disappointment, Herc Holdings maintained its 2025 guidance, expecting to capitalize on revenue synergies from the H&E acquisition. The company anticipates capturing 20% of these synergies in the first year, increasing to 60% in the second year. Additionally, the acquisition is expected to enhance Herc Holdings’ capabilities, although it poses potential integration challenges. The company also announced a 5% increase in its annual dividend to $2.80 per share. Analysts from firms like Goldman Sachs and JPMorgan have inquired about the company’s pricing discipline and project pipeline, to which Herc Holdings reported stable pricing and no significant project delays.
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