Herc Holdings (HRI) reported its Q1 2025 results on Tuesday before the markets opened. Investors did not like what they heard about the rest of the year. 

Its shares dropped to a new 52-week low of $96.19, the 22nd 52-week low of the past 12 months. However, its share price recovered from the day’s low to finish above $100. It was the first time below $100 since June 2022. 

The equipment rental company’s CEO, Larry Silber, said about the year ahead, “As expected, the 2025 operating landscape continues to be a tale of two disparate economic trends.”

Silber was referring to its healthy business with national accounts but not-so-healthy local accounts that are more affected by interest rates. 

Due to this weakness, the company’s 2025 sales guidance was significantly lower than the Wall Street estimate. 

I wouldn’t characterize Herc’s business as flawless. However, HRI stock has lost 59% of its value since hitting an all-time high of $246.88 in early November. 

Herc Holdings might not be a $246 stock, but it’s not a $100 stock either. Here’s why. 

The Equipment Rental Market Remains Competitive

There is no question that Herc does business in a very competitive market. 

Based on 2023 revenue, it is the third-largest equipment rental company behind Sunbelt Rentals, privately owned by the UK’s Ashstead Group in second place, and United Rentals (URI), the country’s largest. 

The three companies control 30% of the North American equipment rental market. It remains an industry undergoing consolidation, with the other 70% market share spread among many smaller businesses. 

Naturally, acquisitions will continue to be a part of all three companies’ growth strategy. 

Herc Beats Out Its Bigger Rival

In January, United Rentals announced it would acquire H&E Equipment Services for $4.8 billion, including the assumption of $1.4 billion in debt. H&E’s revenue in the 12 months ended Sept. 3o, 2024, was $1.52 billion, with adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of nearly $700 million. 

Less than a month later, Herc managed to snag H&E out of United Rental’s hands before the ink on its deal to acquire the equipment rental company had dried. 

It paid $5.3 billion, $500 million higher. The transaction is expected to close by the end of June. The cash and stock deal will see H&E shareholders own 14.1% of the combined company, with Herc shareholders owning 85.9%. 

As Barron’s pointed out in February, Herc is paying about 8x H&E’s projected EBITDA in 2025. At the time, HRI stock traded at 6x EBITDA. According to S&P Global Market Intelligence, it now trades at 5.2x EBITDA, one of the lowest multiples since Hertz Global Holdings (HTZ) spun it off in July 2016. 

Herc thinks the acquisition can generate annual cost synergies of $300 million. 

Based on 36.4 million H&E shares outstanding and 0.1287 HRI shares for each HEES share, HERC should issue an additional 4.68 million shares for the acquisition, bringing its total outstanding to 33.2 million. That’s $9.04 a share in savings should the company be successful. 

The Potential Upside 

First, let’s deal with the negatives. 

It expects equipment revenue growth in 2025 of 5%, 600 basis points less than in 2024. It expects adjusted EBITDA of $1.61 billion in 2025, a slight 1.7% increase from 2024. 

Meanwhile, in the first three months of 2025, its adjusted earnings per share were $1.30, 41% lower than analyst estimates. The analyst EPS estimate in 2025 is $12.50, $14.98 in 2026, and $17.59 in 2027.   

As I write this on Wednesday morning, HRI shares are up over 8% in early trading. Based on $111, it trades at 6.3x the 2027 estimate. That’s about 35% less than current EPS multiples. 

While the competition is intense, Herc's opportunities for growth in North America remain in place despite the near-term challenges with its local business. 

“We are pursuing the proposed combination with H&E from a position of strength and view it as a path to accelerate Herc’s strategy and growth trajectory,” Barron’s reported CEO Larry Silber’s February comments in a news release. “This combination would strengthen Herc’s position as a premier rental company in North America.”

As consolidation plays out, there will continue to be more acquisitions. If Herc can remain sensible about the prices paid for these acquisitions, there is no reason why its valuation and market cap shouldn’t rise between now and the end of 2027. 

There’s plenty of business for all three North American leading equipment rental companies, including Herc.

I can’t say with certainty that HRI shares are worth $246. However, I have no problem suggesting $100 is a floor, not a ceiling price, given its ongoing growth and H&E acquisition.

Based on Herc’s unusual options activity yesterday, the Dec. 19 $130 call looks attractive. 

The ask price of $11 is 8.5% of the strike price--anything below 10% is respectable--and you’ve got 241 days for the stock to appreciate $27.95 (24.7%) to breakeven. Further, you can make a 50% return on your call by selling before expiration if the shares appreciate by $15.09 (13.3%). 

That’s doable.