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Herc Holdings Agrees to Acquire Cloverdale Equipment
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Herc Holdings Agrees to Acquire Cloverdale Equipment

Equipment rental supplier Herc Holdings Inc. (HRI) has agreed to acquire Cloverdale Equipment Company, a full-service general equipment rental company, which caters to construction and industrial customers from four locations.

The transaction expands Herc rentals’ footprint to 14 physical locations across Detroit, Grand Rapids, Cleveland, and Pittsburgh. The acquisition is anticipated to close in the second quarter of 2022.

Management Weighs In

President and CEO of Herc, Larry Silber, commented, “Our combined teams and resources position Herc Rental to be a preeminent equipment rental partner in the Great lakes region and nearby markets, serving a diverse mix of construction, industrial, and government customers.”

He added, “With three of its locations in major metropolitan markets, the addition of Cloverdale supports our long-term strategy to achieve greater density and scale in select urban markets across North America to better serve both our local and national customers.”

The addition of Cloverdale is expected to be accretive to Herc’s earnings in the first year. Silber further added that the company is in a good position to achieve growth via different initiatives such as investing in key fleet categories, greenfield branches, and acquired operations.

Analysts’ Take

Recently, Wells Fargo analyst Seth Weber initiated coverage on Herc with a Buy rating and a price target of $205. Amid the challenging equipment supply and improving demand backdrop, Weber views equipment rental operators favorably.

Overall, the Street has a Moderate Buy consensus rating on Herc based on 2 Buys and a Hold. The average Herc Holdings price target of $190.33 implies a potential upside of 27.2% for the stock. 

Valuation Speaks

Let us consider some of the key metrics for Herc and how it fares against the broader industry.

Herc has an earnings before interest, taxes, depreciation and amortization (EBITDA) margin of 41.8%, which is over 200% better than the industry median of 13.3%. Notably, Herc generates $40,000 in net income per employee, whereas the median industry figure is $20,800, indicating Herc is superior in utilizing its workforce.

On the other hand, Herc’s asset turnover ratio is at 0.51%, which is well behind the industry median of 0.78%, indicating the company has legroom to better utilize its assets.

Further, the forward non-GAAP P/E multiple for Herc is at 44, while the median figure for the industry is 17.71, indicating Herc’s current share price level is on the cheaper side versus its industry peers. Shares were up 14.7% over the past six months.

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