Is Herc Holdings (HRI) Pricing Reflect Its Cash Flow Outlook After Recent Share Price Jump

• If you are wondering whether Herc Holdings' current share price reflects its true worth, this article will walk through what the numbers are actually saying about value.
• The stock recently closed at US$108.91, with returns of 9.1% over 3 years and 18.8% over 5 years. More recent periods have been weaker, with a 7 day return of 9.3%, 30 day return of 37.1%, year to date return of 28.5% and 1 year return of 14.0%.
• Recent coverage has focused on Herc Holdings as a US equipment rental company and has highlighted ongoing interest in how its capital intensive business model responds to changing demand and financing conditions. This context has kept attention on whether the current share price lines up with the value implied by its assets, cash flows and balance sheet.
• Our Simply Wall St valuation checks currently give Herc Holdings a value score of 6 out of 6. Next we will walk through the usual valuation tools before finishing with a different way to think about what that score really means.

Find out why Herc Holdings's -14.0% return over the last year is lagging behind its peers.

Approach 1: Herc Holdings Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a company might be worth by projecting future cash flows and then discounting them back to today’s value using a required rate of return.

For Herc Holdings, the model used is a 2 Stage Free Cash Flow to Equity approach. The latest twelve months free cash flow is a loss of $36.87 million, so the story here is less about current cash generation and more about what the business could produce over time.

Analyst estimates, combined with Simply Wall St extrapolations, imply free cash flow reaching $1,076.17 million in 2035, with $794 million projected for 2030. All of these figures are in US$, and anything beyond the first few years is model driven rather than directly forecast by analysts.

When those projected cash flows are discounted back, the resulting intrinsic value is $240.68 per share. Compared with the recent share price of $108.91, this implies the stock is 54.7% undervalued according to this DCF model.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Herc Holdings is undervalued by 54.7%. Track this in your watchlist or portfolio, or discover 48 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Herc Holdings.

Approach 2: Herc Holdings Price vs Sales

P/S can be a useful way to think about value for asset heavy, cyclical businesses because revenue tends to be more stable than earnings from year to year. It helps you compare what investors are paying for each dollar of sales, without getting caught up in short term profit swings.

What counts as a reasonable P/S often reflects how fast a company is expected to grow and how risky its future cash flows appear. Higher growth and lower perceived risk usually support a higher multiple, while slower growth or higher uncertainty usually point to a lower one.

Herc Holdings is currently trading on a P/S of 0.83x, compared with the Trade Distributors industry average of 1.16x and a peer average of 2.00x. Simply Wall St’s Fair Ratio for Herc Holdings is 2.15x, which is its proprietary estimate of what the P/S could be given factors like earnings growth, profit margins, industry, market cap and risk profile.

This Fair Ratio can be more informative than a simple peer or industry comparison because it folds those company specific drivers into one benchmark. With the current P/S of 0.83x sitting below the 2.15x Fair Ratio, the multiple based view points to the shares being undervalued.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Herc Holdings Narrative

Earlier we mentioned that there is an even better way to understand valuation. Narratives let you attach a clear story about Herc Holdings, including what you think its future revenue, earnings and margins might look like, to a financial forecast that produces a Fair Value you can compare with the current share price. All of this happens inside the Simply Wall St Community page used by millions of investors, where different views update automatically as new news or earnings arrive. One investor might build a bullish Herc Holdings Narrative around a Fair Value of US$257.84 based on stronger growth and higher margins, while another might anchor a more cautious Narrative around US$100.00. By seeing where your own Fair Value sits between those two, you can decide whether the current price feels high, low or about right for your own thesis.

Do you think there's more to the story for Herc Holdings? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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