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Why Shares of Herc Holdings Are Soaring This Week

By Scott Levine – Sep 24, 2021 at 7:15AM

Key Points

  • Wall Street sees upside to the stock.
  • Management is targeting growth over the next three years.

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Investors like what management sees in the company's crystal ball.

What happened

Through the first three weeks of September, shares of Herc Holdings (HRI 0.31%) hadn't given investors much to celebrate, falling nearly 2%. But this week, things have turned around dramatically for the equipment-rental company. As of the market's close on Thursday, shares of Herc Holdings are up 19.9% for the week. 

Besides an analyst's bullish take on the stock, investors have been inspired to pick up shares based on the company's upwardly revised 2021 forecast and its encouraging short-term outlook.

A happy woman works on a laptop.

Image source: Getty Images.

So what

Two months after he hiked his price target on Herc's stock to $145 from $135, Mircea Dobre, an analyst at Baird, lifted his price target again on Monday. Keeping an outperform rating on the stock, Dobre raised his price target to $158, according to The new price target represented upside of about 23% based on the stock's closing price of $128.91 last Friday.

In addition to news from the Street, announcements from the company itself moved investors to act this week. Hosting its Investor Day on Monday, Herc announced that it was raising its 2021 adjusted earnings before interest, taxes, depreciation, and amortization (EBIDTA) guidance. Originally, the company had forecasted adjusted EBITDA of $840 million to $870 million for 2021. Now it expects to generate $870 million to $890 million. Next year looks even brighter as management forecasted 2022 adjusted EBITDA guidance of $1.05 billion to $1.15 billion.

But it's the company's multiyear growth targets that may have inspired investors the most. With plans to expand into new urban markets, the company is targeting an organic compound annual growth rate of 12% to 15% in rental revenue, as well as 17% to 20% in adjusted EBITDA from 2021 to 2024.

Now what

While the company's growth plans have investors excited, those on the sidelines who may be considering an investment in Herc should recognize that shares aren't cheap. The stock is now trading at 6.5 times operating cash flow, a steeper price tag than its five-year average multiple of 3.1.

Scott Levine has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Herc Holdings Inc.  Stock Quote
Herc Holdings Inc.
$132.50 (0.31%) $0.41

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