Friday, May 25, 2012

HEES: Equipping the recovery

H&E Equipment Services (HEES) rents, sells and services heavy construction and industrial equipment. The Baton Rouge, Louisiana company carries a huge selection of equipment and brands. It's the sort of service that would be essential for putting together a major project.

In the broader context: The economy is recovering, and with recovery comes more construction, and therefore more business for H&E, which is equipping the recovery.

H&E's biggest competitors, by market capitalization, are CCI, ARGKF, URI and TMTNF.

HEES was selected by Zacks as today's short-term aggressive growth stock. The Zacks analysis, written by Brian Bolan,  is here. I haven't read it yet, and won't until I've completed my own analysis. You, Gentle Reader, get to compare.

The HEES chart shows a stock recovering to the upside from a downtrend, and faltering in that attempt.

The most recent leg of the downtrend  began May 3 from $19.54 and hit bottom on May 17 at $14.42. The upward correction peaked this week, on May 23 and May 24, at $16.36, and is off that peak today but within the prior day's trading range.

I say faltering because the last two days have been down intra-day, and the stock today has (so far) recorded a lower high, although not yet a lower low.

Big picture, the weekly chart shows HEES coming off of a double top, the first in April 2011 around $20.40, and the second in March of this year at $21.

The trough, between the twin peaks, bottomed at $6.80 in October 2011. The lore of double tops, if you believe that sort of thing, would have it that once that neckline is pierced, the downside target is the height for the double top, from the neck to the peak.

In this case, that would be a further $13.60 decline below the neck, effectively down to zero. Which just goes to show the sorts of crazy results that happen when playing with chart patterns (as opposed to what I do, which is working seriously with chart trends).

For practical trading, I would hope to be out of the stock well before it reaches the neckline again, and I would treat the $21 level as strong resistance.

HEES has a return on equity of 8%, which puts it in the slow and steady category, with high long-term debt, amounting to 102% of equity.

Institutions own 75% of shares, which are priced cheap. It takes only 75 cents in shares to control a dollar in sales.

Earnings were dismal, with large losses through the middle of last year. They then turned positive, with three quarterly rises in a row, before a seasonal drop-off in the 1st quarter of this year. The company has beat analysts expectations the past four quarters.

On average, HEES trades 275,000 shares a day. That supports a very limited selection of options, with low open interest and wide bid/ask spreads.

Implied volatility stands at 58%, at the rock bottom of the six-month range.

Options traders are pricing in a 68.2% chance that the stock will close between $13.42 and $18.78 a month from now, for a maximum gain or loss of 17%.

H&E next publishes earnings on Aug. 6.

Decision for my account: With such a dismal options selection, its shares or nothing in my book when it comes to trading HEES. I would want to see a break above the present near-term stall peak of  $16.36, re-establishing the uptrend begun off of the correction low. In my decision I'm entirely disregarding the double top on the weekly chart. It's too big a structure to matter for my time horizon, and the results of applying the standard double-top rules for the price are, frankly, absurd.

I won't be opening a bull position on HEES at this time because my trading funds are fully committed. If I had fund available, I would play the stock upon a persistent break above $16.36.


Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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