TRG | The Bottom Line – 3/15

TRG held its March Fireside Chat with H&E Equipment this week. The focal points were on the evolving nature of the industry that favors the larger players, H&E’s durable flexible growth strategy, and the demand outlook (non-res construction) in 2024. H&E is a miniscule piece of the rental industry, but is far larger than the vast majority of rental companies. This puts H&E in the sweet spot for investors as an advantaged growth company who can take share for years to come with a solid margin profile, even with cyclicality. But H&E management, multiple times on the call, stated that non-res construction (70% exposure) is poised to grow again this year and that their growth strategy is sustainable to carry them for years. H&E has an extreme degree of flexibility in dialing its growth investments up or down, those being: new fleet, new branches, and acquisitions. We believe their strategy is high-return and low-risk, and the company has (and will likely maintain) a conservative balance sheet as they proceed on this pathway.  In simple form, we believe HEES is a growth company (revenue growing, EBITDA margin expanding from ~46% last year) at a value price (~4-5x EV on our FY’24-25 estimates).