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Headquartered in Baton Rouge, Louisiana, H&E Equipment Services (HEES - Free Report) is one of the largest integrated equipment services companies in the U.S., focused on heavy construction and industrial equipment. It was formed in 2002 through the merger of H&E and ICM.

The company rents, sells and provides parts and service support for four core categories of specialized equipment: 1) hi-lift or aerial platform equipment, 2) cranes, 3) earthmoving equipment, and 4) industrial lift trucks.

Favorable Industry Trends

Manufacturing has been a bright spot of late, in the US as well as globally. November jobs report revealed a strong rise in manufacturing and construction hiring. Manufacturing unemployment is now a record low levels.

With improving economic growth, businesses have stepped up their capital spending, including on heavy equipment.

“Manufacturing—Construction & Mining” is currently ranked 2 out of 265 Zacks Industries (top 1%). Trump's trillion-dollar infrastructure plan, expected to be launched next year, will also benefit the industry.

While hurricanes impacted construction activity in the short-term, in the longer-term the company will benefit from post-hurricane rebuilding effort.

Impressive Third Quarter Results

Third quarter total revenues increased 5.9% or $14.5 million to $259.2 million. Margins improved to 36.3% from 36% a year ago.

Adjusted income increased to $27.1 million or $0.76 per share from $11.7 million or $0.33 per share a year ago. EPS beat the Zacks Consensus Estimate of $0.39 by 95%.

Rental revenues increased 6.0%, new equipment sales 9.3% and used equipment sales increased 7.9%.“Our rental business performed extremely well during the third quarter, capitalizing on the strong broad-based demand in the non-residential construction markets we serve,” said the CEO.

Rising Estimates

After strong results, analysts have raised estimates for the company. Zacks Consensus Estimates for the current and next year are $1.61 per share and $1.54 per share, up from $1.12 and 1.30 respectively, before the results. The company has beaten in three out of last four quarters, with an average quarterly surprise of 35%.

The Bottom Line

HEES is a Zacks Rank #1 (Strong Buy) stock, with Style Score of “A” for Value as well as VGM. Further, it has a very juicy dividend yield of 3%.

The stock is up about 60% this year but is currently trading at a reasonable valuation of 22.8 times forward earnings, in-line with the industry. Additionally, given expected EPS growth of 15.55% over the next 3-5 years, it looks attractive at current valuation.

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