Equipment Rentals: Pocket of Optimism?

With both United Rentals and Herc Holdings affirming their guidance this week, the resilience of the economy got another vote.

Apr 24, 2025

A big menu of equipment for the many markets served…

When major equipment rental operators affirm their guidance after all this recent policy uncertainty and noise, it is a good sign even if much remains to be played out in tariffs and how customer markets will adjust on the fly as 2025 proceeds.
We have watched equipment rental operators for a long time, and we always find their intel high quality given their extensive branch networks and sales teams and increasingly sophisticated customer analytics.
The affirmation of guidance by both United Rentals and Herc Holdings this week offers some rays of optimism that the bulk of spending plans just don’t unwind suddenly on tariff noise since there are long tails for many projects and notably in such areas as infrastructure, LNG, and data centers among many. The reality is that it takes time for even the most cyclical end markets to wind down or scale back (e.g. industrial capacity plans such as autos/EVs, etc.).
One of the credit virtues of equipment rental issuers is the ability to adjust fleet planning and capex with short lead times, but they are not adjusting yet with a lot of tariff decisions in process even if Trump appears to be in a bit of a moonwalk lately.

The above chart highlights the three main equipment rental companies and some of the main machinery and capital goods manufacturers. We detail their stock returns over various time horizons and line them up in descending order of YTD total returns. We highlight H&E Equipment Services (HEES) as initially an acquisition target for United Rentals, who was then outbid by Herc at a very high premium. Only HEES and Deere are in positive range.

The equipment rental players are heavily weighted to the US and Canada. In contrast, the manufacturers are very much global players – and with heavy exposure to tariffs. Equipment rental issuers show much lower fixed cost intensity in comparison and thus have less earnings and cash flow volatility. As we go to print today, URI was up by 9.4% while Herc was up by +5.8%. URI is a big player in the sector and their reaffirmed guidance offered some more credibility to that from HRI this week.

With United Rentals earnings release after the close last night and the company conducting its investor call earlier today, the granularity in the trenches offered some very credible color on what an extensive array of end markets are indicating to their equipment providers. That URI discussion plus the Herc Rentals results and call offer less gloom than what can be “war gamed” from some of the more dire forecasts around how tariffs can play out. Negative extrapolation can run amok, and there is some of that naturally in this market with trade wars in play now (US vs. China) and which could escalate easily (US vs. EU, US vs. Canada, etc.).

The equipment rental guidance did not signal an immediate need to make adjustments to expectations for these major players looking at their broadly diverse customer base across a range of “multiplier effect” industries. We already looked at Herc’s results (see Credit Snapshot: Herc Holdings (HRI) 4-23-25) and did a recent update on United Rentals (see Credit Snapshot: United Rentals (URI) 4-1-25). We also looked through URI results and read this morning’s transcript.

The top line, earnings and financial metrics are holding steady. The URI numbers were very strong, and that industry leader reaffirming guidance was good news just given its scale, breadth and role as a market leader. Herc (HRI) has the risk of a massive acquisition pending that adds a complicating factor to its story, and it is clear the stock market is treating it differently as seen in the YTD divergence of HRI stock returns from URI and Ashtead.

The weakness in the overall securities markets tied to tariff turmoil has been covered a lot already. Within the equipment rental group, the relative underperformance has fallen harder on HRI with its higher credit risk profile, less developed business model vs. peers (despite Herc having been around much longer than URI and Ashtead in their current forms).

Herc also has the question of being a company that outbid URI for HEES before the full level of tariff insanity had been out in full view. There was a consensus in Feb (we did not agree) that “negotiation tactics” ruled before the reciprocal tariff excess that the market is still wrestling with now. There is a lot more industry tariff risk still in process (e.g. lumber, pharma, semis, copper). Pharma would be a trigger point for a well justified trade war move by the EU given the auto tariffs plus the reciprocal tariffs in process (see US-EU Trade: The Final Import/Export Mix 2024 2-11-25). Pharma + Autos + Reciprocal virtually assures such a clash if Trump goes that route.

The idea is capex budgets will get slashed, projects canceled or dialed back, and Federal and state budgets should get derailed. With Trump canceling Federal budget mandates like he is the anti-Oprah (“You lose a program! You lose a program! Everybody loses a program!), the fear is that many more projects will get scrapped. The projects on the Trump wish list (energy from E&P to LNG, AI and data centers, reshoring, semis, and more) still offer plenty to keep the equipment rental business well fed. The fact that so many EV and battery projects are in red states also takes some of the edge off the Trump anti-EV worry.

The above stock chart for the Big 3 of equipment leasing from 2019 tells an interesting story of the economic growth trends and how key customer markets have been spending. The path of the equities in this peer group shows a bull market for capex, nonresidential, industrial, and infrastructure spending that we have been through. Such charts can be reassuring just on the level of economic activity since the customer base runs across so many industry groups from goods (materials, construction, durables, energy) to services (freight and logistics, financial/insurance, etc.).

The good news for equipment leasing…

The equipment leasing end markets have had something for both sides of the political axe grinding aisle. For the GOP, the priorities of LNG, data centers, semis, infrastructure, E&P and certainly reshoring are priorities now. Deregulation of private sectors on a broad scale, the tax plan supporting equipment investment, the growth in private credit, looser rules for energy activity and removal of many environmental guardrails all bode well for capex across a wide range of customer verticals. The Democrats don’t have the votes to rein in any of those. The EV and battery focus of the Democrats still have a wide range of projects in process, and most will continue even if scaled back while some will run off with some of the planning on others shelved.

The weakness we see in equipment rental equities YTD is in part defensive after such a heady run, some to reflect the uncertainty of the final tariff rules, and setbacks for Canada-US cooperation and related project work. The most important variable is cyclical fear of the macro fallout from tariffs.

In the end, this US-centric mix of rental markets (with a healthy slice in Canada) are more insulated from the tariff wars. That sustains the credit quality stories even if the equity growth themes are struggling.

For URI and HRI, the issue of tariffs did not end up as a worry during the Q&A session in terms of direct impacts. Uncertainty and higher costs in new equipment can even support rental vs. ownership. Equipment rental companies have a useful data point in COVID and the post-COVID inflation period. Rental operators did well and supply chain disruptions can even drive rental fleet pricing power.

Footnotes & Flashbacks: Credit Markets 4-21-25

Footnotes & Flashbacks: State of Yields 4-20-25

Footnotes & Flashbacks: Asset Returns 4-20-25

Mini Market Lookback: The Powell Factor 4-19-25

Ships, Fees, Freight & Logistics Pain: More Inflation? 4-18-25

Home Starts Mar 2025: Weak Single Family Numbers 4-17-25

Credit Snapshot: Service Corp International (SCI) 4-16-25

Retail Sales Mar25: Last Hurrah? 4-16-25

Industrial Production Mar 2025: Capacity Utilization, Pregame 4-16-25

Credit Snapshot: Iron Mountain (IRM) 4-14-25

Mini Market Lookback: Trade’s Big Bang 4-12-25

Tariffs, Pauses, and Piling On: Helter Skelter 4-11-25