MGRC: Multi Year Rental Visibility Will Support Stronger EBITDA Resilience

Analysts have modestly lifted their price target for McGrath RentCorp to $147 from $144, citing expectations for resilient multi year EBITDA growth supported by Mobile Modular rental expansion, improving visibility on revenue per unit, and stabilizing performance in smaller segments.

Analyst Commentary

Bullish analysts highlight that the updated valuation reflects confidence in McGrath RentCorp’s ability to sustain adjusted EBITDA growth over a multi year horizon, underpinned by its core Mobile Modular rental platform and improving trends in adjacent businesses.

Bullish Takeaways

Bullish analysts view the multi year visibility of Mobile Modular rentals, with an average four year contract duration, as supporting a more predictable revenue and EBITDA trajectory. This is cited as a key justification for a higher price target.
Rising rental revenue per unit, helped by value added offerings such as Mobile Modular Plus and Site Related Services, is seen as a key driver of margin expansion and return on invested capital.
Signs of stabilization in the Portable Storage segment and a rebound in the TRS RenTelco business reduce execution risk across smaller platforms. This is viewed as supporting a premium to historical valuation multiples.
Management’s engagement with investors and clear articulation of growth priorities are viewed as positive indicators for disciplined capital allocation and continued operational execution.

Bearish Takeaways

Bearish analysts remain cautious that the upgraded price targets assume continued strength in Mobile Modular utilization and pricing. They note this may leave limited room for missteps before valuation looks full.
Reliance on a relatively concentrated growth engine in Mobile Modular may expose the company to cyclical or competitive pressures that could slow EBITDA growth versus current expectations.
The recovery trajectory in TRS RenTelco and sustained stabilization in Portable Storage are not yet fully proven, creating downside risk if end market demand softens.
Longer average rental durations, while supporting visibility, may also limit flexibility to reprice quickly in a weaker demand environment. This could potentially constrain upside to earnings estimates.

What's in the News

Raised full year 2025 revenue guidance to a range of $935 million to $955 million, tightening from the prior $925 million to $960 million outlook. This signals improved confidence in growth trajectories (corporate guidance update).
Reported completion of its longstanding share repurchase program announced in May 2008, having bought back a total of 2,690,195 shares, or 10.54% of shares outstanding, for $77.62 million, with no additional shares repurchased in the latest quarter (buyback tranche update).

Valuation Changes

Fair Value: The price target has risen slightly from $144 to $147, reflecting a modest upward adjustment in intrinsic value estimates.
Discount Rate: The assumed discount rate has increased marginally from 8.34% to 8.39%, implying a slightly higher required return for equity holders.
Revenue Growth: The projected top line growth rate has risen moderately from 3.91% to 4.58%, indicating higher expectations for future sales expansion.
Net Profit Margin: The forecast net margin has increased significantly from 8.51% to 17.96%, suggesting a materially improved outlook for profitability.
Future P/E: The expected future price-to-earnings multiple has fallen substantially from 48.9x to 23.5x, pointing to a more conservative valuation framework despite higher earnings assumptions.

Recurring rental revenues and topline growth are supported by robust demand, market expansion, and increased adoption of rental models over outright ownership.
Investments in technology, operations, and new market sectors are driving margin improvements, operational efficiency, and diversification of revenue streams.
Weaker segment demand, higher operating costs, fleet underinvestment, unpredictable order flow, and end-market cyclicality could undermine revenue stability and profit margins.

Catalysts

About McGrath RentCorp

Operates as a business-to-business rental company in the United States and internationally.What are the underlying business or industry changes driving this perspective?

Robust infrastructure projects and steady education spending are driving healthy quote activity, growing backlogs, and strong rental demand for modular solutions-supporting recurring revenue and topline growth potential even in mixed macro conditions.
Expanding geographic presence and entry into new end markets (e.g., data centers, healthcare, industrial) through strategic hiring and acquisitions is expected to diversify and compound revenue streams, while mitigating cyclicality and supporting long-term earnings growth.
Rising adoption of rental models as customers shift from owning to renting equipment-motivated by capital efficiency and flexibility-supports stable, higher-margin recurring rental revenues and reduces exposure to capital expenditure cycles.
Investments in technology, digital platforms, and advanced fleet and sales management are improving operational efficiency, enabling margin expansion, reduced SG&A over time, and enhancing returns on invested capital.
Capacity investments and strong performance in the Enviroplex (modular classroom manufacturing) and Modular Plus/site-related services businesses are unlocking operating leverage and driving stronger EBITDA margins and cash flow conversion.

McGrath RentCorp Earnings and Revenue Growth

McGrath RentCorp Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming McGrath RentCorp's revenue will grow by 3.9% annually over the next 3 years.
Analysts assume that profit margins will shrink from 26.8% today to 8.5% in 3 years time.
Analysts expect earnings to reach $89.9 million (and earnings per share of $3.67) by about September 2028, down from $252.4 million today. The analysts are largely in agreement about this estimate.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 48.9x on those 2028 earnings, up from 12.0x today. This future PE is greater than the current PE for the US Trade Distributors industry at 22.0x.
Analysts expect the number of shares outstanding to grow by 0.25% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.34%, as per the Simply Wall St company report.

McGrath RentCorp Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Softer demand conditions in key segments, including lower average fleet utilization (down to 73.7% from 78.4% in Mobile Modular and 61.1% from 66.1% in Portable Storage) indicate cyclical and sector weakness, which may pressure both near-term and long-term revenue and earnings if these trends persist.
Rising selling and general administrative expenses due to strategic hiring and ongoing investments in IT/digital infrastructure could permanently increase the company's cost base, potentially putting sustained pressure on EBITDA margins if topline growth does not accelerate.
The company is relying on existing fleet inventory to meet demand instead of investing in new rental equipment, reflecting lower current and projected utilization-if demand remains below expectations, this could result in decreased future revenue growth and operational leverage.
Delays and unpredictability in project sales and rental order conversion, due to macroeconomic uncertainty and fluid customer behavior, increase forecasting risk and could lead to lumpier, less predictable earnings and revenue streams across future periods.
Portable Storage's ongoing susceptibility to fluctuations in commercial construction activity-described as "bouncing along the bottom" with only tentative signs of recovery-underscores long-term cyclicality risk in key end markets, potentially impacting consolidated revenue and EBITDA resilience.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $144.0 for McGrath RentCorp based on their expectations of its future earnings growth, profit margins and other risk factors.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.1 billion, earnings will come to $89.9 million, and it would be trading on a PE ratio of 48.9x, assuming you use a discount rate of 8.3%.
Given the current share price of $122.59, the analyst price target of $144.0 is 14.9% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Modular Solutions Will Diversify Through New Markets Amid Cyclical Risks