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Here's Why H&E Equipment (HEES) is a Solid Investment Choice

Zacks Equity Research

We believe that H&E Equipment Services, Inc. HEES is a solid choice for investors seeking exposure to the machinery space. The company is poised to gain traction from its initiatives to acquire meaningful businesses, healthy end-market demand and international expansion.

The stock was upgraded to a Zacks Rank #1 (Strong Buy) on Nov 22.

H&E Equipment reported better-than-expected earnings in three of the last four quarters, pulling off an average earnings surprise of 34.66%. Notably, the company’s shares have rallied 78.5% in the last three months, outperforming 27.1% gain of the industry.


Why the Upgrade?

H&E Equipment performed well in third-quarter 2017, with earnings per share surpassing the Zacks Consensus Estimate by 94.87%. Revenues grew 5.9% primarily on the back of 6% increase in equipment rental revenues, 9.3% growth in new equipment sales, 7.9% increase in used equipment sales and a slight 1.6% rise in parts sales. Gross margin improved 30 basis points year over year.

We believe that H&E Equipment is well placed to gain traction from the strengthening non-residential construction end market. Notably, revenue contribution from this end market was 63% in the third quarter. Also, healthy Gulf Coast activities, active energy market, rise in industrial production, long-term industrial projects and infrastructure backlogs are positives for the company. Its equipment fleet is well maintained and young, with average rental fleet age of 34.3 months,  lower than the industry average of 43.4 months.

In addition, H&E Equipment believes in expanding its businesses geographically and widening its product portfolio through its acquired assets and expansion of greenfield sites. Notably, the company recently signed an agreement to acquire Contractors Equipment Center (“CEC”), a Colorado-based equipment rental company. CEC, which primarily serves the non-residential construction market, will strengthen H&E Equipment’s footprint in Colorado as well as double its branch count to six.

Earnings estimates for both 2017 and 2018 have been revised upward by two brokerage firms in the last 30 days. The Zacks Consensus Estimate stands at $1.61 for 2017 and $1.46 for 2018, reflecting a respective increase of 43.8% and 12.3% from 30 days ago.

H&E Equipment Services, Inc. Price and Consensus
 

H&E Equipment Services, Inc. Price and Consensus | H&E Equipment Services, Inc. Quote

H&E Equipment has a market capitalization of $1.3 billion.

Other Stocks to Consider

Other stocks top-ranked stocks in the industry include Caterpillar, Inc. CAT, The Manitowoc Company, Inc. MTW and Terex Corporation TEX. All these stocks sport a Zacks Rank #1.  You can see the complete list of today’s Zacks #1 Rank stocks here.

Caterpillar pulled off an average positive earnings surprise of 53.06% over the last four quarters. Also, earnings estimates for 2017 and 2018 were revised upward over the last 60 days.

Manitowoc delivered an average positive earnings surprise of 139.10% in the trailing four quarters. Also, bottom-line expectations for 2017 and 2018 improved over the past 60 days.

Terex’s financial performance was impressive, with an average positive earnings surprise of 135.92% in the last four quarters. Also, earnings estimates for 2017 and 2018 were revised upward over the last 60 days.

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