What Happened?
A number of stocks jumped in the morning session after an in-line inflation report fueled hopes for interest rate cuts and the U.S. and China agreed to extend their tariff truce. The Consumer Price Index (CPI), a key measure of inflation, came in largely as expected, holding steady at 2.7% year-over-year. This reading boosted investor optimism that the Federal Reserve will have room to lower interest rates at its next meeting, which could reduce borrowing costs for companies and consumers.
Adding to the positive sentiment, the U.S. and China extended their tariff truce for another 90 days. This development alleviates concerns about renewed trade tensions, which is a significant relief for industrial companies reliant on global supply chains and international sales. Together, these events create a favorable outlook for economic growth, benefiting cyclical sectors like industrials.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Ground Transportation company Saia (NASDAQ:SAIA) jumped 4.1%. Is now the time to buy Saia? Access our full analysis report here, it’s free.
- Specialty Equipment Distributors company United Rentals (NYSE:URI) jumped 4%. Is now the time to buy United Rentals? Access our full analysis report here, it’s free.
- Specialty Equipment Distributors company Herc (NYSE:HRI) jumped 6.3%. Is now the time to buy Herc? Access our full analysis report here, it’s free.
- Construction and Maintenance Services company Construction Partners (NASDAQ:ROAD) jumped 3.2%. Is now the time to buy Construction Partners? Access our full analysis report here, it’s free.
- Water Infrastructure company Energy Recovery (NASDAQ:ERII) jumped 3.4%. Is now the time to buy Energy Recovery? Access our full analysis report here, it’s free.
Zooming In On Herc (HRI)
Herc’s shares are extremely volatile and have had 37 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 14 days ago when the stock dropped 17.9% on the news that the company issued a disappointing full-year forecast that overshadowed its second-quarter financial results. While the equipment rental company's revenue grew 18.2% year-over-year to $1.00 billion, it reported a net loss of $35 million. This loss stemmed primarily from $73 million in costs related to its acquisition of H&E Equipment Services and a $49 million asset impairment. The market reacted negatively to the company's updated guidance for the full year, with its revenue projection falling 15% below analyst expectations. The acquisition also increased Herc's debt load and pushed its net leverage ratio to 3.8x, amplifying concerns about the company's financial stability amid the costly integration process.
Herc is down 35.5% since the beginning of the year, and at $119.99 per share, it is trading 49.9% below its 52-week high of $239.28 from November 2024. Investors who bought $1,000 worth of Herc’s shares 5 years ago would now be looking at an investment worth $2,896.
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