Buckingham Upgrades United Rentals, Herc Holdings On Encouraging Sector Trends

Herc Holdings Inc HRI and United Rentals, Inc. URI picked up a sell-side upgrade Friday on projections of higher equipment rental rates. 

The Analyst

Buckingham Research Group's Neil Frohnapple upgraded United Rentals and Herc Holdings from Neutral to Buy. Buckingham has a $180 price target for United Shares and $70 price target for Herc shares.

The Thesis

Buckingham's eighth consecutive monthly equipment rental rate momentum survey painted a bullish view of rental rates, Frohnapple said in the Friday upgrade note. (See the analyst's track record here.) 

"Over two-thirds of contacts noted that rates were above their expectations in the month of June, which marked the highest number of respondents citing above rental rate performance since we commenced this survey publication," the analyst said. "Additionally, 100 percent of contacts we surveyed revealed that their outlook for rental rates over the next 12 months improved versus 30 days ago." 

Consequently, Frohnapple expects the progression of rental rates to be higher than initially expected for both 2018 and 2019.

United Rentals, the largest equipment rental company in the world, will likely prosper based on this data, Frohnapple said. While the company functions in a very specific market, improving rental growth will only continue to build up United's rapport and trust, he said.

"We also think the company’s scale and rapid expansion of its specialty business are underappreciated aspects of the United Rentals story, which should continue to drive higher cycle-over-cycle returns,” said Frohnapple.

Fronhapple expects Herc to thrive the most from the trends identified in Buckingham's survey. The company should develop rental rate revenue faster than the industry  as a whole this year and has instituted pertinent business plans, the analyst said. 

“The company has also significantly expanded its sales force over the last twenty four months in part to support the increase in its urban market density and should start to experience improved leverage from these hires.”

Price Action

Herc shares were up 4.14 percent at $59.67 at the close Friday. United Rentals was up 1.65 percent at $154.83 at the close.

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