Dear Mr. Berko: My 83-year-old dad can no longer manage his $565,000 stock and bond portfolio, so it has become my responsibility, which I’m glad to take. I am an accountant and am familiar with the stock market. My dad and I, having read your column for nearly 35 years (I’ve been a reader since I was 20), trust your advice. Dad’s portfolio has mainly utilities and blue chips. I recently sold his speculative issues.
There is one stock that I haven’t been able to figure out just yet: H&E Equipment Services. Dad bought 700 shares of the stock several weeks before Thanksgiving last year at $14, but there’s not much written about the stock. I asked two stockbrokers, who are clients of mine, and neither of them had heard of the stock. Dad told me to do anything I want with it, but I prefer to ask your advice first. — PS, Fort Walton Beach, Fla.
Dear PS: And last year, several weeks before Thanksgiving, John Engquist, the CEO of H&E Equipment Services, also bought the stock. He bought 34,000 shares and now owns 2.8 million shares. That’s a good sign.
H&E Equipment Services (HEES-$35), a $1 billion-revenue company, is a minor big shot in the highly fragmented business of very heavy equipment, competing with thousands of much smaller, independently owned businesses that primarily serve local markets. HEES rents, sells and services high-lift aerial platforms, industrial lift trucks, earthmovers, cranes and the like.
The three key components to HEES’ profitability are economic growth, thriving commercial and industrial activity, and access to capital. And right now, all three components seem to be opportunity knocking. We very badly need to repair and upgrade our transportation infrastructure — roads, bridges, airports, railways and waterways. And we immediately and desperately need to repair and upgrade our environmental infrastructure — drinking water systems, municipal solid waste and wastewater treatment systems. It’s estimated that the costs over the next 20 years will be in the trillions of dollars. And the funding will be a combination of municipal and federal and corporate debt with tax credits. So companies such as H&E Equipment Services expect increasing demand this year, which should translate into higher rental prices and solid improvement in revenue growth and income. Some observers believe that HEES will even raise its dividend.
So HEES appears to be a timely and high-class speculation. HEES’ $1.10 dividend yields a comfortable 3.1 percent. HEES has 78 facilities located on the West Coast, in the Southwest and on the Gulf Coast. Equipment rental (27,062 pieces of heavy industrial and construction equipment) brings in 46 percent of revenues. Customers include public utilities, municipalities, construction contractors and maintenance contractors. The average age of HEES’ equipment is less than 3 years old. New equipment sales represent 20 percent of revenues. HEES sells new heavy construction and industrial equipment with such names as Bobcat, Manitowoc, Terex, Gehl and Komatsu. Used equipment sales are responsible for 10 percent of revenues. HEES sells used equipment derived mainly from Manitowoc’s rental fleet, as well as equipment acquired from customer trade-ins. Parts sales account for 11 percent of revenues. HEES sells new and used parts to customers and also provides parts for its own rental fleet. Service support claims 6 percent of revenues, providing maintenance and repair service for its customers, warranty repairs and ongoing preventive maintenance. The remaining 7 percent of revenues derive from non-segmented equipment support activities.
HEES has Zacks’ highest buy rating. And Market Edge, Charles Schwab, Oppenheimer, J.P. Morgan, BlackRock and Vanguard are also bullish on HEES. The consensus suggests that within the next 12 months, HEES could cross the $42 level, where it traded in May 2014. It should be a comfortable wait because the $1.10 dividend, which could be raised to $1.20, makes waiting worthwhile.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at email@example.com.