Stifel Sees Potential For H&E Equipment Services

The equipment rental and distribution industry is uniquely positioned to benefit from improving construction and infrastructure market growth, according to one analyst.

The Analyst

Stifel analyst Stanley Elliott initiated coverage of H&E Equipment Services, Inc. HEES with a Buy rating and $46 price target.

The Thesis

H&E Equipment Services is a leading integrated equipment services company in the U.S., with 79 branches across the southern and western U.S. and a strong presence in the rental market, Elliott said in a note.

The rental industry is likely to experience secular growth, thanks to improving fundamental trends and encouraging U.S. non-residential growth, the analyst added. If the infrastructure stimulus becomes a reality, the analyst expects the company to benefit from increasing demand.

Related Link: Here Are The Sectors To Watch As U.S. Mulls Infrastructure Spend

Stifel sees consolidation opportunity in the highly-fragmented rental industry, either in the form of bolt-on acquisitions and/or large regional acquisitions. This prospect, according to the firm, presents above-market growth potential and an improved pricing environment.

Based on preliminary analysis, the firm expects the newly enacted U.S. tax reform to benefit the company materially, although the repeal of the Like-Kind Exchange provisions could offset some of the gains.

"Still, between the potential for a strengthening economic backdrop and improving cash flows, we see the potential for investors to be surprised to the upside," the firm said.

Price Action

H&E Equipment Services shares are up about 46 percent over the past year. At last check, shares were up 4.7 percent Friday to $37.78.