赫克租赁教育系列回顾

Restricted - External HRIOVERWEIGHTU.S. Machinery &ConstructionPOSITIVEPrice TargetUSD 160.00Price (09-Jun-25)USD 121.42Potential Upside/Downside+31.8%Source: Bloomberg, Barclays ResearchU.S. Machinery & ConstructionAdam Seiden, CFA+1 212 526 2212adam.seiden@barclays.comBCI, USSteven Li+1 212 526 9497steven.li@barclays.comBCI, USTyler Russell+1 212 526 7584tyler.russell@barclays.comBCI, US A positive surprise for Herc was that the customer base overlap should be smaller than whatmanagement had expected. On a by-count basis, management had thought HRI and H&Eoverlapped in ~30% of the customer base, but analysis by 3rd party consultants found it shouldbe closer to only the 10% of customers with whombothH&E and Herc had a meaningfulrelationship. Management also saw the acquired customer portfolio as an opportunity for long-term relationship expansion instead of short-term monetization. Synergies would come from abroader categoryoffering(both specialty and gen. rent) to customers with whom legacy H&Ealready had good relationships instead of chasing price adjustments in the near term.To realize this aforementioned revenue synergy sized at $240-250mn, management estimated a$600mn gross capex need on an annual basis. The net spend could be a lot lower at ~$300mndue to planned fleetefficiencyactions taken on both legacy Herc and H&E assets. Managementwas also hopeful that fleetefficiencyand deployment of specialty equipment could improvedollar utilization over the next three years.In addition to this expanded portfolio, another value-add that Herc couldofferto both legacyH&E and its customers is Herc's rental managementsoftware.Internally, legacy H&Esoftwarewas not consolidated, meaning branch managers would now be able to view Herc fleetavailability and utilization on a more integrated basis and help move fleet moreefficientlyandcapture more value. Externally, Herc'ssoftwarewould give customers better visibility of theirassets and drive productivity.To finance this deal, Herc assumed ~$4.4bn of incremental debt, which would leave net leverageat 3.6-3.7x and add ~$200-230mn of incremental interest expense. Management reiterated itsdeleveraging target of <3x within 24 months of ownership.As a result of this deleverage targetand focus on integration, Herc will likely not be active in the M&A market. However, it willstill be open to the right specialty assets once it issufficientlyfurther along in the H&Eintegration process.Turning to the broader market, management was confident megaproject activities are still inthe early innings of the reshoring/chips/LNG themes, and Herc's presence is still limited withpotential for share gains as its capacity grows. Local markets, on the other hand, turnednegative around mid '24 and hurt both HRI and H&E, which was primarily a local marketsbusiness.For rates, the overall industry stabilized at low-single-digit % range, supported by better fleetdiscipline across the market,afterthe local market started turningsoft15 months ago. The nextpotential catalyst to rates would depend on interest rates - management believed a 75bpsreduction to interest rates would be enough to spur interest rate-sensitive local market projects.On the supply side, management reiterated it sources primarily domestically and has yet to seetariffimpacts on cost of materials in 2025, as price terms were pre-negotiated last year. It willget more clarity on next year'stariffimpact during the pre-negotiation process this Q4.2 Analyst(s) Certification(s):I, Adam Seiden, CFA, hereby certify (1) that the views expressed in this research report accurately reflect my personal views about any or all of thesubject securities or issuers referred to in this research report and (2) no part of my compensation was, is or will be directly or indirectly related to thespecific recommendations or views expressed in this research report.Important Disclosures:Barclays Research is produced by the Investment Bank of Barclays Bank PLC and itsaffiliates(collectively and each individually, "Barclays"). Allauthors contributing to this research report are Research Analysts unless otherwise indicated. The publication date at the top of the report reflects thelocal time where the report was produced and maydifferfrom the release date provided in GMT.Availability of Disclosures:Where any companies are the subject of this research report, for current important disclosures regarding those companies please refer to https://publicresearch.barclays.com or alternatively send a written request to: Barclays Research Compliance, 745 Seventh Avenue, 13th Floor, New York, NY10019 or call +1-212-526-1072.The analysts responsible for preparing this research report have received compensation based upon various factors including the firm's total revenues,a portion of which is generated by investment banking activities, the profitability and revenues of the Markets business and the potential interest of thefirm's investing clients in research with respect