Intrinsic value of H&E Equipment Services - HEES

Previous Close

$34.28

  Intrinsic Value

$82.05

stock screener

  Rating & Target

str. buy

+139%

Previous close

$34.28

 
Intrinsic value

$82.05

 
Up/down potential

+139%

 
Rating

str. buy

We calculate the intrinsic value of HEES stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2017), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 1.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  5.30
  5.27
  5.24
  5.22
  5.20
  5.18
  5.16
  5.14
  5.13
  5.12
  5.10
  5.09
  5.08
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
  5.04
  5.04
  5.03
  5.03
  5.03
  5.02
  5.02
  5.02
  5.02
  5.02
  5.01
Revenue, $m
  1,085
  1,142
  1,202
  1,264
  1,330
  1,399
  1,471
  1,547
  1,626
  1,709
  1,796
  1,888
  1,984
  2,085
  2,190
  2,301
  2,418
  2,540
  2,668
  2,802
  2,943
  3,092
  3,247
  3,410
  3,582
  3,761
  3,950
  4,148
  4,357
  4,575
Variable operating expenses, $m
  517
  544
  572
  601
  632
  664
  698
  733
  770
  809
  841
  884
  929
  976
  1,026
  1,078
  1,132
  1,189
  1,249
  1,312
  1,378
  1,448
  1,520
  1,597
  1,677
  1,761
  1,850
  1,943
  2,040
  2,142
Fixed operating expenses, $m
  418
  427
  437
  446
  456
  466
  476
  487
  497
  508
  520
  531
  543
  555
  567
  579
  592
  605
  618
  632
  646
  660
  675
  690
  705
  720
  736
  752
  769
  786
Total operating expenses, $m
  935
  971
  1,009
  1,047
  1,088
  1,130
  1,174
  1,220
  1,267
  1,317
  1,361
  1,415
  1,472
  1,531
  1,593
  1,657
  1,724
  1,794
  1,867
  1,944
  2,024
  2,108
  2,195
  2,287
  2,382
  2,481
  2,586
  2,695
  2,809
  2,928
Operating income, $m
  150
  171
  193
  217
  242
  269
  297
  327
  358
  391
  436
  473
  512
  554
  598
  644
  693
  745
  800
  858
  919
  984
  1,052
  1,124
  1,200
  1,280
  1,364
  1,454
  1,548
  1,647
EBITDA, $m
  308
  337
  368
  400
  434
  471
  509
  549
  591
  636
  683
  733
  786
  841
  900
  961
  1,027
  1,095
  1,168
  1,244
  1,325
  1,410
  1,499
  1,594
  1,693
  1,798
  1,909
  2,025
  2,148
  2,277
Interest expense (income), $m
  52
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Earnings before tax, $m
  150
  171
  193
  217
  242
  269
  297
  327
  358
  391
  436
  473
  512
  554
  598
  644
  693
  745
  800
  858
  919
  984
  1,052
  1,124
  1,200
  1,280
  1,364
  1,454
  1,548
  1,647
Tax expense, $m
  40
  46
  52
  59
  65
  73
  80
  88
  97
  106
  118
  128
  138
  150
  161
  174
  187
  201
  216
  232
  248
  266
  284
  303
  324
  346
  368
  392
  418
  445
Net income, $m
  109
  125
  141
  158
  177
  196
  217
  238
  261
  286
  318
  345
  374
  404
  436
  470
  506
  544
  584
  626
  671
  718
  768
  820
  876
  934
  996
  1,061
  1,130
  1,202

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  -25
  -27
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -56
  -59
  -62
  -65
  -68
  -72
  -75
  -79
  -83
  -87
  -92
  -96
  -101
  -106
Adjusted assets (=assets-cash), $m
  -25
  -27
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -56
  -59
  -62
  -65
  -68
  -72
  -75
  -79
  -83
  -87
  -92
  -96
  -101
  -106
Revenue / Adjusted assets
  -43.400
  -42.296
  -42.929
  -43.586
  -42.903
  -43.719
  -43.265
  -42.972
  -42.789
  -42.725
  -42.762
  -42.909
  -43.130
  -43.438
  -42.941
  -43.415
  -43.179
  -43.051
  -43.032
  -43.108
  -43.279
  -42.944
  -43.293
  -43.165
  -43.157
  -43.230
  -42.935
  -43.208
  -43.139
  -43.160
Average production assets, $m
  1,495
  1,573
  1,656
  1,742
  1,833
  1,928
  2,027
  2,131
  2,241
  2,355
  2,476
  2,602
  2,734
  2,873
  3,018
  3,171
  3,331
  3,500
  3,676
  3,862
  4,056
  4,260
  4,474
  4,699
  4,935
  5,183
  5,443
  5,717
  6,003
  6,304
Working capital, $m
  -1,284
  -1,352
  -1,423
  -1,497
  -1,575
  -1,656
  -1,742
  -1,831
  -1,925
  -2,024
  -2,127
  -2,235
  -2,349
  -2,468
  -2,593
  -2,725
  -2,862
  -3,007
  -3,159
  -3,318
  -3,485
  -3,660
  -3,845
  -4,038
  -4,241
  -4,454
  -4,677
  -4,912
  -5,158
  -5,417
Total debt, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total liabilities, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total equity, $m
  -25
  -27
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -56
  -59
  -62
  -65
  -68
  -72
  -75
  -79
  -83
  -87
  -92
  -96
  -101
  -106
Total liabilities and equity, $m
  -25
  -27
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -56
  -59
  -62
  -65
  -68
  -72
  -75
  -79
  -83
  -87
  -92
  -96
  -101
  -106
Debt-to-equity ratio
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
Adjusted equity ratio
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  109
  125
  141
  158
  177
  196
  217
  238
  261
  286
  318
  345
  374
  404
  436
  470
  506
  544
  584
  626
  671
  718
  768
  820
  876
  934
  996
  1,061
  1,130
  1,202
Depreciation, amort., depletion, $m
  158
  166
  175
  183
  192
  202
  212
  222
  233
  245
  248
  260
  273
  287
  302
  317
  333
  350
  368
  386
  406
  426
  447
  470
  494
  518
  544
  572
  600
  630
Funds from operations, $m
  268
  291
  316
  342
  369
  398
  428
  461
  495
  530
  566
  605
  647
  692
  738
  787
  839
  894
  952
  1,013
  1,077
  1,144
  1,215
  1,290
  1,369
  1,453
  1,540
  1,633
  1,730
  1,833
Change in working capital, $m
  -65
  -68
  -71
  -74
  -78
  -82
  -85
  -90
  -94
  -98
  -103
  -108
  -114
  -119
  -125
  -131
  -138
  -145
  -152
  -159
  -167
  -175
  -184
  -193
  -203
  -213
  -224
  -235
  -246
  -259
Cash from operations, $m
  332
  359
  387
  416
  447
  480
  514
  550
  588
  629
  669
  714
  761
  811
  863
  919
  977
  1,039
  1,103
  1,172
  1,244
  1,320
  1,399
  1,484
  1,572
  1,666
  1,764
  1,868
  1,977
  2,091
Maintenance CAPEX, $m
  -142
  -149
  -157
  -166
  -174
  -183
  -193
  -203
  -213
  -224
  -236
  -248
  -260
  -273
  -287
  -302
  -317
  -333
  -350
  -368
  -386
  -406
  -426
  -447
  -470
  -494
  -518
  -544
  -572
  -600
New CAPEX, $m
  -75
  -79
  -82
  -86
  -91
  -95
  -99
  -104
  -109
  -115
  -120
  -126
  -132
  -139
  -146
  -153
  -160
  -168
  -177
  -185
  -194
  -204
  -214
  -225
  -236
  -248
  -260
  -273
  -287
  -301
Cash from investing activities, $m
  -217
  -228
  -239
  -252
  -265
  -278
  -292
  -307
  -322
  -339
  -356
  -374
  -392
  -412
  -433
  -455
  -477
  -501
  -527
  -553
  -580
  -610
  -640
  -672
  -706
  -742
  -778
  -817
  -859
  -901
Free cash flow, $m
  115
  131
  147
  164
  182
  201
  222
  243
  266
  290
  313
  340
  369
  399
  430
  464
  500
  537
  577
  619
  663
  710
  759
  811
  866
  924
  985
  1,050
  1,118
  1,190
Issuance/(repayment) of debt, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Issuance/(repurchase) of shares, $m
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
Cash from financing (excl. dividends), $m  
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
Total cash flow (excl. dividends), $m
  114
  129
  145
  162
  181
  200
  220
  241
  264
  288
  311
  338
  366
  396
  428
  462
  497
  534
  574
  616
  660
  706
  756
  807
  862
  920
  981
  1,045
  1,113
  1,185
Retained Cash Flow (-), $m
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
Prev. year cash balance distribution, $m
  24
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
Cash available for distribution, $m
  139
  131
  147
  164
  182
  201
  222
  243
  266
  290
  313
  340
  369
  399
  430
  464
  500
  537
  577
  619
  663
  710
  759
  811
  866
  924
  985
  1,050
  1,118
  1,190
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  133
  120
  128
  135
  141
  146
  150
  152
  153
  152
  149
  145
  140
  134
  126
  118
  109
  99
  89
  79
  69
  59
  50
  41
  34
  27
  21
  16
  12
  9
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

H&E Equipment Services, Inc. is an integrated equipment services company. The Company is focused on heavy construction and industrial equipment. As of December 31, 2016, the Company rented, sold and provided parts and services support for four core categories of specialized equipment: hi-lift or aerial work platform equipment; cranes; earthmoving equipment, and industrial lift trucks. The Company's principal business activities include equipment rentals; new equipment sales; used equipment sales; parts sales, and repair and maintenance services. As of February 16, 2017, the Company had 78 facilities located throughout the West Coast, Intermountain, Southwest, Gulf Coast, Southeast and Mid-Atlantic regions of the United States. The Company rents its heavy construction and industrial equipment to its customers on a daily, weekly and monthly basis. The Company sells new heavy construction and industrial equipment. The Company is a distributor of Grove and Manitowoc crane equipment.

FINANCIAL RATIOS  of  H&E Equipment Services (HEES)

Valuation Ratios
P/E Ratio 32.9
Price to Sales 1.2
Price to Book 8.5
Price to Tangible Book
Price to Cash Flow 6.9
Price to Free Cash Flow -46.9
Growth Rates
Sales Growth Rate -6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -1.5%
Cap. Spend. - 3 Yr. Gr. Rate -7.3%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 439.9%
Total Debt to Equity 553.8%
Interest Coverage 2
Management Effectiveness
Return On Assets 5.5%
Ret/ On Assets - 3 Yr. Avg. 6%
Return On Total Capital 3.9%
Ret/ On T. Cap. - 3 Yr. Avg. 4.8%
Return On Equity 25.9%
Return On Equity - 3 Yr. Avg. 35.3%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 34.4%
Gross Margin - 3 Yr. Avg. 33.2%
EBITDA Margin 30.8%
EBITDA Margin - 3 Yr. Avg. 29.9%
Operating Margin 11.3%
Oper. Margin - 3 Yr. Avg. 12.3%
Pre-Tax Margin 6%
Pre-Tax Margin - 3 Yr. Avg. 7.3%
Net Profit Margin 3.8%
Net Profit Margin - 3 Yr. Avg. 4.4%
Effective Tax Rate 37.3%
Eff/ Tax Rate - 3 Yr. Avg. 40.1%
Payout Ratio 105.4%

HEES stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HEES stock intrinsic value calculation we used $1030 million for the last fiscal year's total revenue generated by H&E Equipment Services. The default revenue input number comes from 2017 income statement of H&E Equipment Services. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our HEES stock valuation model: a) initial revenue growth rate of 5.3% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for HEES is calculated based on our internal credit rating of H&E Equipment Services, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of H&E Equipment Services.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of HEES stock the variable cost ratio is equal to 47.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $409 million in the base year in the intrinsic value calculation for HEES stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for H&E Equipment Services.

Corporate tax rate of 27% is the nominal tax rate for H&E Equipment Services. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the HEES stock is equal to 0.3%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for HEES are equal to 137.8%.

Life of production assets of 10 years is the average useful life of capital assets used in H&E Equipment Services operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for HEES is equal to -118.4%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $0 million for H&E Equipment Services - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 36 million for H&E Equipment Services is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of H&E Equipment Services at the current share price and the inputted number of shares is $1.2 billion.

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COMPANY NEWS

▶ H&E Equipment Services Reports Quarterly Cash Dividend   [Aug-08-18 08:00AM  Business Wire]
▶ H&E Equipment: 2Q Earnings Snapshot   [Jul-26-18 09:11AM  Associated Press]
▶ H&E Equipment: 1Q Earnings Snapshot   [09:48AM  Associated Press]
▶ 5 Solid Dividend Growth Stocks Below $100   [Apr-13-18 09:44AM  Zacks]
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▶ Market Tanks on Tariff Talk   [Mar-02-18 09:15AM  Zacks]
▶ New Strong Buy Stocks for March 1st   [Mar-01-18 10:35AM  Zacks]
▶ H&E Equipment beats 4Q profit forecasts   [07:43AM  Associated Press]
▶ H&E Equipment Services Reports Quarterly Cash Dividend   [Feb-16-18 04:05PM  Business Wire]
▶ Play EPS Surprises With These 5 Top Stocks   [Dec-14-17 04:39PM  Zacks]
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