Intrinsic value of Herc Holdings Inc. - HRI

Previous Close

$41.13

  Intrinsic Value

$108.12

stock screener

  Rating & Target

str. buy

+163%

Previous close

$41.13

 
Intrinsic value

$108.12

 
Up/down potential

+163%

 
Rating

str. buy

We calculate the intrinsic value of HRI 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 0001), $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
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  10.60
  10.04
  9.54
  9.08
  8.67
  8.31
  7.98
  7.68
  7.41
  7.17
  6.95
  6.76
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.76
  5.68
  5.61
  5.55
  5.50
  5.45
  5.40
  5.36
  5.33
  5.29
  5.26
Revenue, $m
  2,187
  2,406
  2,636
  2,875
  3,124
  3,384
  3,654
  3,934
  4,226
  4,529
  4,844
  5,171
  5,511
  5,865
  6,234
  6,617
  7,017
  7,433
  7,867
  8,320
  8,793
  9,286
  9,802
  10,341
  10,904
  11,493
  12,109
  12,754
  13,429
  14,136
Variable operating expenses, $m
  899
  985
  1,076
  1,170
  1,268
  1,370
  1,476
  1,587
  1,701
  1,821
  1,906
  2,035
  2,169
  2,308
  2,453
  2,604
  2,761
  2,925
  3,096
  3,274
  3,460
  3,654
  3,857
  4,069
  4,291
  4,523
  4,765
  5,019
  5,285
  5,563
Fixed operating expenses, $m
  996
  1,018
  1,041
  1,064
  1,087
  1,111
  1,135
  1,160
  1,186
  1,212
  1,239
  1,266
  1,294
  1,322
  1,351
  1,381
  1,411
  1,443
  1,474
  1,507
  1,540
  1,574
  1,608
  1,644
  1,680
  1,717
  1,755
  1,793
  1,833
  1,873
Total operating expenses, $m
  1,895
  2,003
  2,117
  2,234
  2,355
  2,481
  2,611
  2,747
  2,887
  3,033
  3,145
  3,301
  3,463
  3,630
  3,804
  3,985
  4,172
  4,368
  4,570
  4,781
  5,000
  5,228
  5,465
  5,713
  5,971
  6,240
  6,520
  6,812
  7,118
  7,436
Operating income, $m
  291
  402
  519
  641
  769
  903
  1,042
  1,187
  1,338
  1,496
  1,699
  1,870
  2,049
  2,235
  2,429
  2,632
  2,844
  3,065
  3,297
  3,539
  3,793
  4,058
  4,336
  4,628
  4,933
  5,253
  5,589
  5,942
  6,312
  6,700
EBITDA, $m
  790
  948
  1,113
  1,285
  1,466
  1,654
  1,850
  2,054
  2,267
  2,488
  2,719
  2,959
  3,209
  3,470
  3,742
  4,026
  4,322
  4,631
  4,954
  5,291
  5,644
  6,014
  6,400
  6,805
  7,229
  7,673
  8,139
  8,627
  9,139
  9,677
Interest expense (income), $m
  71
  137
  156
  176
  197
  219
  242
  266
  291
  317
  343
  371
  400
  430
  462
  494
  528
  564
  600
  639
  679
  720
  764
  809
  857
  906
  958
  1,013
  1,069
  1,129
  1,191
Earnings before tax, $m
  155
  247
  343
  444
  550
  661
  776
  896
  1,022
  1,153
  1,328
  1,470
  1,618
  1,773
  1,935
  2,104
  2,280
  2,465
  2,658
  2,861
  3,072
  3,294
  3,527
  3,771
  4,027
  4,295
  4,577
  4,872
  5,183
  5,509
Tax expense, $m
  42
  67
  93
  120
  149
  178
  210
  242
  276
  311
  358
  397
  437
  479
  522
  568
  616
  666
  718
  772
  830
  889
  952
  1,018
  1,087
  1,160
  1,236
  1,316
  1,399
  1,487
Net income, $m
  113
  180
  251
  324
  402
  482
  567
  654
  746
  841
  969
  1,073
  1,181
  1,294
  1,412
  1,536
  1,665
  1,800
  1,941
  2,088
  2,243
  2,405
  2,575
  2,753
  2,939
  3,135
  3,341
  3,557
  3,784
  4,022

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
  3,990
  4,391
  4,809
  5,246
  5,701
  6,175
  6,667
  7,179
  7,711
  8,264
  8,839
  9,436
  10,057
  10,703
  11,375
  12,075
  12,804
  13,564
  14,356
  15,183
  16,045
  16,946
  17,887
  18,870
  19,898
  20,972
  22,097
  23,274
  24,506
  25,795
Adjusted assets (=assets-cash), $m
  3,990
  4,391
  4,809
  5,246
  5,701
  6,175
  6,667
  7,179
  7,711
  8,264
  8,839
  9,436
  10,057
  10,703
  11,375
  12,075
  12,804
  13,564
  14,356
  15,183
  16,045
  16,946
  17,887
  18,870
  19,898
  20,972
  22,097
  23,274
  24,506
  25,795
Revenue / Adjusted assets
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
  0.548
Average production assets, $m
  3,223
  3,547
  3,885
  4,238
  4,605
  4,988
  5,386
  5,799
  6,229
  6,675
  7,140
  7,622
  8,124
  8,645
  9,188
  9,754
  10,343
  10,956
  11,596
  12,264
  12,961
  13,688
  14,448
  15,242
  16,072
  16,940
  17,849
  18,799
  19,794
  20,836
Working capital, $m
  114
  125
  137
  149
  162
  176
  190
  205
  220
  235
  252
  269
  287
  305
  324
  344
  365
  387
  409
  433
  457
  483
  510
  538
  567
  598
  630
  663
  698
  735
Total debt, $m
  2,594
  2,931
  3,283
  3,651
  4,033
  4,432
  4,846
  5,276
  5,724
  6,189
  6,672
  7,174
  7,697
  8,240
  8,805
  9,394
  10,007
  10,646
  11,312
  12,007
  12,733
  13,490
  14,281
  15,108
  15,972
  16,876
  17,822
  18,812
  19,848
  20,933
Total liabilities, $m
  3,356
  3,693
  4,045
  4,412
  4,795
  5,193
  5,607
  6,038
  6,485
  6,950
  7,433
  7,936
  8,458
  9,001
  9,567
  10,155
  10,768
  11,407
  12,074
  12,769
  13,494
  14,251
  15,043
  15,869
  16,734
  17,638
  18,583
  19,573
  20,609
  21,694
Total equity, $m
  634
  698
  765
  834
  906
  982
  1,060
  1,142
  1,226
  1,314
  1,405
  1,500
  1,599
  1,702
  1,809
  1,920
  2,036
  2,157
  2,283
  2,414
  2,551
  2,694
  2,844
  3,000
  3,164
  3,335
  3,513
  3,701
  3,896
  4,101
Total liabilities and equity, $m
  3,990
  4,391
  4,810
  5,246
  5,701
  6,175
  6,667
  7,180
  7,711
  8,264
  8,838
  9,436
  10,057
  10,703
  11,376
  12,075
  12,804
  13,564
  14,357
  15,183
  16,045
  16,945
  17,887
  18,869
  19,898
  20,973
  22,096
  23,274
  24,505
  25,795
Debt-to-equity ratio
  4.090
  4.200
  4.290
  4.380
  4.450
  4.510
  4.570
  4.620
  4.670
  4.710
  4.750
  4.780
  4.810
  4.840
  4.870
  4.890
  4.920
  4.940
  4.960
  4.970
  4.990
  5.010
  5.020
  5.040
  5.050
  5.060
  5.070
  5.080
  5.090
  5.100
Adjusted equity ratio
  0.159
  0.159
  0.159
  0.159
  0.159
  0.159
  0.159
  0.159
  0.159
  0.159
  0.159
  0.159
  0.159
  0.159
  0.159
  0.159
  0.159
  0.159
  0.159
  0.159
  0.159
  0.159
  0.159
  0.159
  0.159
  0.159
  0.159
  0.159
  0.159
  0.159

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  113
  180
  251
  324
  402
  482
  567
  654
  746
  841
  969
  1,073
  1,181
  1,294
  1,412
  1,536
  1,665
  1,800
  1,941
  2,088
  2,243
  2,405
  2,575
  2,753
  2,939
  3,135
  3,341
  3,557
  3,784
  4,022
Depreciation, amort., depletion, $m
  499
  545
  593
  644
  696
  751
  808
  867
  928
  992
  1,020
  1,089
  1,161
  1,235
  1,313
  1,393
  1,478
  1,565
  1,657
  1,752
  1,852
  1,955
  2,064
  2,177
  2,296
  2,420
  2,550
  2,686
  2,828
  2,977
Funds from operations, $m
  612
  725
  844
  968
  1,098
  1,233
  1,374
  1,521
  1,674
  1,834
  1,989
  2,162
  2,342
  2,529
  2,725
  2,929
  3,142
  3,365
  3,597
  3,840
  4,094
  4,360
  4,639
  4,930
  5,235
  5,555
  5,891
  6,242
  6,611
  6,998
Change in working capital, $m
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
Cash from operations, $m
  601
  714
  832
  956
  1,085
  1,220
  1,360
  1,507
  1,659
  1,818
  1,973
  2,145
  2,324
  2,511
  2,706
  2,909
  3,121
  3,343
  3,575
  3,817
  4,070
  4,335
  4,612
  4,902
  5,206
  5,525
  5,859
  6,209
  6,576
  6,962
Maintenance CAPEX, $m
  -416
  -460
  -507
  -555
  -605
  -658
  -713
  -769
  -828
  -890
  -954
  -1,020
  -1,089
  -1,161
  -1,235
  -1,313
  -1,393
  -1,478
  -1,565
  -1,657
  -1,752
  -1,852
  -1,955
  -2,064
  -2,177
  -2,296
  -2,420
  -2,550
  -2,686
  -2,828
New CAPEX, $m
  -309
  -324
  -338
  -353
  -368
  -383
  -398
  -414
  -430
  -447
  -464
  -482
  -502
  -522
  -543
  -565
  -589
  -614
  -640
  -668
  -697
  -727
  -760
  -794
  -830
  -868
  -908
  -951
  -995
  -1,042
Cash from investing activities, $m
  -725
  -784
  -845
  -908
  -973
  -1,041
  -1,111
  -1,183
  -1,258
  -1,337
  -1,418
  -1,502
  -1,591
  -1,683
  -1,778
  -1,878
  -1,982
  -2,092
  -2,205
  -2,325
  -2,449
  -2,579
  -2,715
  -2,858
  -3,007
  -3,164
  -3,328
  -3,501
  -3,681
  -3,870
Free cash flow, $m
  -124
  -70
  -13
  48
  112
  179
  250
  324
  401
  481
  555
  642
  734
  829
  928
  1,031
  1,139
  1,252
  1,369
  1,492
  1,621
  1,756
  1,896
  2,044
  2,198
  2,360
  2,530
  2,709
  2,896
  3,092
Issuance/(repayment) of debt, $m
  318
  337
  352
  367
  383
  398
  414
  431
  447
  465
  483
  502
  522
  543
  565
  589
  613
  639
  666
  695
  725
  757
  791
  827
  864
  904
  946
  990
  1,036
  1,085
Issuance/(repurchase) of shares, $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
Cash from financing (excl. dividends), $m  
  318
  337
  352
  367
  383
  398
  414
  431
  447
  465
  483
  502
  522
  543
  565
  589
  613
  639
  666
  695
  725
  757
  791
  827
  864
  904
  946
  990
  1,036
  1,085
Total cash flow (excl. dividends), $m
  194
  267
  339
  415
  495
  578
  664
  754
  848
  946
  1,038
  1,145
  1,256
  1,372
  1,493
  1,620
  1,752
  1,891
  2,036
  2,187
  2,346
  2,513
  2,688
  2,871
  3,063
  3,264
  3,476
  3,698
  3,932
  4,177
Retained Cash Flow (-), $m
  -62
  -64
  -67
  -69
  -72
  -75
  -78
  -81
  -85
  -88
  -91
  -95
  -99
  -103
  -107
  -111
  -116
  -121
  -126
  -131
  -137
  -143
  -150
  -156
  -163
  -171
  -179
  -187
  -196
  -205
Prev. year cash balance distribution, $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
Cash flow adjustment, $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
Cash available for distribution, $m
  132
  203
  273
  346
  422
  502
  586
  673
  764
  858
  947
  1,050
  1,157
  1,269
  1,386
  1,509
  1,636
  1,770
  1,910
  2,056
  2,209
  2,370
  2,538
  2,714
  2,899
  3,094
  3,297
  3,511
  3,736
  3,972
Discount rate, %
  9.90
  10.40
  10.91
  11.46
  12.03
  12.64
  13.27
  13.93
  14.63
  15.36
  16.13
  16.93
  17.78
  18.67
  19.60
  20.58
  21.61
  22.69
  23.83
  25.02
  26.27
  27.58
  28.96
  30.41
  31.93
  33.52
  35.20
  36.96
  38.81
  40.75
PV of cash for distribution, $m
  120
  167
  200
  224
  239
  246
  245
  237
  224
  206
  183
  161
  138
  116
  95
  76
  59
  45
  33
  24
  16
  11
  7
  5
  3
  2
  1
  1
  0
  0
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

Herc Holdings Inc. is an equipment rental supplier. The Company operates approximately 280 branches, of which approximately 270 are in the United States and Canada. It supplies equipment to the markets, including commercial and residential construction, industrial and manufacturing, refineries and petrochemicals, civil infrastructure, automotive, government and municipalities, energy, remediation, emergency response, facilities, entertainment and agriculture. It operates through its Herc Rentals Inc. subsidiary. Its equipment rental business is supported by ProSolutions, its industry-specific solutions-based services, and its ProContractor Tools line. The ProContractor equipment line includes a range of tools, such as air compressors and tool, climate control, plumbing, care and surface preparation. The ProSolutions Industrial Services is a global operation providing an industrial line of products and services, including mobile tool rooms and asset management systems.

FINANCIAL RATIOS  of  Herc Holdings Inc. (HRI)

Valuation Ratios
P/E Ratio -58.2
Price to Sales 0.7
Price to Book 3.7
Price to Tangible Book
Price to Cash Flow 2.7
Price to Free Cash Flow -14
Growth Rates
Sales Growth Rate -7.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -23.8%
Cap. Spend. - 3 Yr. Gr. Rate -6.8%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 684.9%
Total Debt to Equity 689.9%
Interest Coverage 1
Management Effectiveness
Return On Assets 7.7%
Ret/ On Assets - 3 Yr. Avg. 5%
Return On Total Capital -0.8%
Ret/ On T. Cap. - 3 Yr. Avg. 2.3%
Return On Equity -1.5%
Return On Equity - 3 Yr. Avg. 3%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 45.4%
Gross Margin - 3 Yr. Avg. 44.9%
EBITDA Margin 29.6%
EBITDA Margin - 3 Yr. Avg. 33.8%
Operating Margin 5.3%
Oper. Margin - 3 Yr. Avg. 7.7%
Pre-Tax Margin -0.3%
Pre-Tax Margin - 3 Yr. Avg. 5.7%
Net Profit Margin -1.3%
Net Profit Margin - 3 Yr. Avg. 3.5%
Effective Tax Rate -300%
Eff/ Tax Rate - 3 Yr. Avg. -77.6%
Payout Ratio 0%

HRI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HRI stock intrinsic value calculation we used $1977 million for the last fiscal year's total revenue generated by Herc Holdings Inc.. The default revenue input number comes from 0001 income statement of Herc Holdings Inc.. 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 HRI stock valuation model: a) initial revenue growth rate of 10.6% 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 9.9%, whose default value for HRI is calculated based on our internal credit rating of Herc Holdings Inc., 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 Herc Holdings Inc..
    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 HRI stock the variable cost ratio is equal to 41.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $975 million in the base year in the intrinsic value calculation for HRI 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 6% for Herc Holdings Inc..

Corporate tax rate of 27% is the nominal tax rate for Herc Holdings Inc.. 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 HRI stock is equal to 0%.

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 HRI are equal to 147.4%.

Life of production assets of 7 years is the average useful life of capital assets used in Herc Holdings Inc. 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 HRI is equal to 5.2%. 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 - $572.7 million for Herc Holdings Inc. - 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 28.491 million for Herc Holdings Inc. 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 Herc Holdings Inc. at the current share price and the inputted number of shares is $1.2 billion.

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