Earnings estimates for H&E Equipment Services Inc. (HEES) have moved higher in the past week after the provider of integrated equipment services announced upbeat second quarter 2012 results and debt restructuring initiatives. With an average earnings surprise of 135.0% over the past four quarters and with shares nearing their 52-week high, this Zacks #1 Rank (Strong Buy) looks like a solid growth pick.
On August 2, H&E Equipment Services reported second quarter earnings of 80 cents per share, surpassing the Zacks Consensus Estimate by 36% and the year-ago earnings by 275%.
Revenue increased 13% to $209 million on the back of a 26% increase in Equipment rental revenue and a 12% increase in new equipment sales. Original acquisition costs improved 11.6% to $809.3 million while average rental rates spiked 11% year over year. Gross margin improved 480 basis points to 30.7%.
Recently, the company announced a senior note offering worth $480 million with the expectation of using the proceeds to fund the purchase/redemption of its 8 3/8% Senior notes due 2016 and payment of a special cash dividend amounting to $246 million or less (if approved).
Positive Earnings Momentum
Over the last 7 days, five of 6 estimates increased for 2012, leading to a 6.9% rise in the Zacks Consensus Estimate to 93 cents per share. There was a similar trend for 2013, as 5 of 6 estimates again moved up over the same time frame, raising the Zacks Consensus Estimate by 8.3% to $1.31.
The Zacks Consensus Estimates represent year-over-year earnings growth of 258.9% for 2012 and 40.5% for 2013.
Valuation Not So Attractive
H&E Equipment Services is currently trading at a price-to-sales (P/S) ratio of 0.8, compared with its peer group average of 0.7. On a forward P/E basis, shares trade at 19.3x, versus the peer group average of 10.4x. The company offers a ROE of 10.3%, while the peer group average is at 13.2%.
Though the stock has yet to reach pre-recession price levels, it started recovering in the second half of 2009. With several ups and downs, the stock is back on the recovery path and did well in the first halves of 2011 and 2012. Growth prospects appear bright with the rising Zacks Consensus Estimate.
H&E Equipment Services Inc. is based in Baton Rouge, Louisiana and was incorporated in 1961. It operates in the Industrial Goods sector; focusing primarily on heavy construction and industrial equipment. As of February 28, 2012, the company operated through 65 full-service facilities in the United States and had a rental fleet of approximately 17,538 units at year-end 2011. It currently has a market capitalization of approximately $628 million.