The Mighty Hercules Keels Over Dead! Was it the Vaccine? (HRI)

HERC Holdings Inc. (NYSE:HRI) rents heavy equipment to industry via its subsidiaries worldwide.

And during the Batflu, rental equipment was a hot item, apparently, as the stock rose some 1900% (no joke!) during the last, hysterical 20 months.

The charts below will explain more fully, but in the meantime, consider the company’s fundermentals –

• To begin, P/E is an overstuffed 30.18.  This is machine rentals, folks, not social media.
• Dividend Yield is 1.07%.
• Price to Book is 6.10.
• Debt/Equity is 1.97.
• Over the last five years: Sales have grown by 1.20% per year and Earnings have declined by 8.60%. (But everyone’s expecting next year to be a blockbuster.)
• In the last six months, insiders cashed out 69.71% of their holdings – 98% of which was dumped in October.  And whaddaya know, it was almost exclusively Carl Icahn who was responsible for the October cash-out.  He pocketed $86 million from his Herc shares in just the last 30 days!

Icahn Capital was the largest holder of HRI stock over the last few quarters, according to 13F filings.

But it looks like that’s changing.

A Confidence Builder.

The company just completed two acquisitions, expanding their reach in the greater Toronto and Chicago markets and pushing their total number of North American distributors to nearly 300.

The stock has reacted less than enthusiastically, however.

After hitting new highs, it appears it’s now rolling over.

Have a look –

Technically, the negativity is now glowing –

1. To begin, both RSI and MACD are diverging violently from price for six weeks (in green), and
2. RSI looks ready to dive sub-waterline.  Once that occurs (today? tomorrow?), we’ll see more Icahn followers taking profits.
3. Price-wise, we have a break in a rising trend channel (in red) that’s now holding on to support by a thread.
4. The short term moving average (boxed, in black) is the last buttress against a potential 25% tumble to next support at the 137 DMA, now at 140 and rising (in purple).
5. There are also a number of gaps that require filling through 127 (in blue), and technical sellers will be pushing toward that level to realize those fills.

In short, it don’t look good.

Now pan back to the weekly chart to get some additional perspective –

1. Here, most tellingly, we see extended overbought RSI WEEKLY readings (in green), which speak to buying exhaustion and – now that they’re declining – increased selling momentum.
2. Monthly RSI (not shown here) is also overbought.
3. MACD is losing steam and appears to be well advanced in its rollover.
4. Simple Fibonacci retracement calculations see potential declines to either 130 or 85 (in purple), the former of which aligns perfectly with the aforementioned gaps that require filling AND rising support at 140.

And it’s for all the foregoing that we’re now recommending the following SPECULATIVE bet –

A Jew and His Money recommends you consider purchasing the HRI March 18^th 160/145 PUT spread* for a debit of $5.00 (9.50/4.50).

[*Buy the 160 PUT and sell the 145 Put.]

Rationale: deep-out-of-the-money PUT spreads are expensive, and for a reason – they’re very likely to pay off.

Conversely, March at-the-money CALL spreads can only be bought and sold for a LOSS.

All of which goes to show that the options market is expecting Herc shares to decline.

That said, the trade we’ve structured is speculative because it’s meaningfully out-of-the-money.

It pays $10.00 NET for an outlay of $5.00, and that’s a 200% profit if it works out.

But it’s gotta get there first.

And we’re confident it will.

Max loss on the trade is limited to the initial debit, $5.00.

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The arrogant ones have to rise to the height of belief in their own power before any fall can ensue.

At that point, we feed them to the lions.

May G-d protect us all until that great and glorious day.

With kind regards,

Hugh L. O’Haynew

Follow @HughLOHaynew