According to Bank America, the “Hollywood finish” for Herc has been postponed. Analyst Sharif Al Sabahi downgraded the stock to underperform, citing the near-term impact of the ongoing writers’ and actors’ strike in Hollywood. It also lowered its price target to $140 from $150, implying a 1.6% pullback from Thursday’s close. Herc rents equipment such as forklifts, generators and light towers to companies in a variety of industries, including entertainment. “Clearly, the entertainment impact will be relatively modest (~3-5% of sales), however it muddies a story that has become more about execution. In an earnings season where we expect broadly positive results across the board, this stands as an unusual acceleration,” Al Sabahi wrote in a Friday note. El-Sabbahy remains bullish on the core markets for the company and the rental equipment industry, noting that multi-year tailwinds include infrastructure, electric vehicle investments and semiconductor manufacturing. While entertainment is a small part of Herc’s portfolio, the segment is higher margin and includes less fungible equipment than the construction business when activity declines, the analyst noted. “In the first quarter, Hark’s results were moderately impacted by overall film and studio production levels following higher content production coming out of the pandemic,” Al-Sabahi said. “Moderation in production levels impacted REBITDA margins by ~40bps in Q1. We expect the impact to be particularly high in Q2, given work stoppages due to the writers (and now actors) strike.” Operating leverage has been a weak point for the company in the past few quarters, the analyst added. Shares fell 1.6% in premarket trading on Friday. The stock is up 8.1% in 2023 as shares have risen more than 38% over the past 12 months. —CNBC’s Michael Bloom contributed to this report.
.
Source by [CNBC News]
