McGRATH RENTCORP (MGRC): what the price requires
At today's price, McGRATH RENTCORP (MGRC) is priced for -0.8% growth. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.
Generated: 2026-07-14 · Exported: 2026-07-16 · Source: https://boothcheck.com/report/MGRC
Headline
| Field | Value |
|---|---|
| Ticker | MGRC |
| Company | McGRATH RENTCORP |
| Current price | $117.17/sh |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin needed | 3.7% |
| Operating margin today | 24.0% |
| Margin compression implied | -20.3pp |
| Implied growth | -0.8% |
| Multiple paid | 16x operating income |
The operating-margin requirement is derived from the framework's value band at year 11, a separately labeled basis from the headline growth/duration solve.
Solve inputs: computed at a 7.6% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~6.9pp.
Reconcile: at the x-ray's 9.3% required return this reads ~9.6%/yr; the models below use their own rates.
How unusual the bet is: within-range (limited comparison data)
| Reference | Value |
|---|---|
| vs own history | -0.78σ |
| implied end-window share | 0% |
Valuation X-Ray
The price is justified by relative-multiple and growth-DCF; earnings-power land below the price.
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 1.49x | 5 | expensive |
| Earnings | 2.02x | 5 | expensive |
| Relative | 1.22x | 5 | expensive |
| Growth | 0.99x | 3 | justifies |
Families that justify the price: Relative, Growth Families that call it expensive: Earnings
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 7.6%); the inversion above states its own rate.
Per-Model Detail (n=18)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $160.22 | 0.73x | yes | FCF base $0.2B, growth 3% (input: historical growth), terminal g 3.5%, WACC 7.6%, 5yr projection |
| DCF Exit Multiple | Growth | $118.81 | 0.99x | yes | Exit EV/EBITDA: 11.3x / 13.3x / 15.3x (bear / base = today's held flat / bull), 5yr |
| Relative Valuation | Relative | $110.26 | 1.06x | yes | P/E 18x (static sector reference · 2026-04), scenarios: 15.2x / 18.0x / 20.8x (bear / base = reference held flat / bull), EV/EBITDA 12x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | $68.00 | 1.72x | yes | BV/sh $50.14, ROE (TTM) 12.5%, ke 9.3% |
| Two-Stage Excess Return | Asset | $78.61 | 1.49x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $83.92 | 1.40x | yes | Rev $0.9B, growth 3% (input: historical growth; tapered), Terminal P/S: 2.6x / 3.1x / 3.5x (bear / base = today's held flat / bull, cap 8x) |
| Peter Lynch Fair Value | Relative | $75.60 | 1.55x | yes | EPS $6.30, growth 6% (input: historical EPS growth), PEG=2.91 (Overvalued) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | $49.36 | 2.37x | yes | Normalized EBIT (5y avg op income, one-time charges added back) $0.20B × (1−27%) / WACC 7.6% → EPV (no growth) |
| Residual Income | Asset | $80.82 | 1.45x | yes | BV $50.14 + 5yr PV of (ROE (TTM) 12.5% − Kₑ 9.3%) × BV; BV grows 8.2%/yr |
| Graham Number | Asset | $84.31 | 1.39x | yes | √(22.5 × EPS $6.30 × BVPS $50.14) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $103.34 | 1.13x | yes | EBITDA $0.27B × sector EV/EBITDA 12.0x |
| FCF Yield | Earnings | $58.13 | 2.02x | yes | FCF $195.7M / Kₑ 9.3% — zero-growth perpetuity |
| SBC-Adj FCF Yield | Earnings | $53.08 | 2.21x | yes | SBC-adj FCF $0.18B (FCF $0.20B − SBC $0.01B) capitalized at Kₑ |
| Ben Graham Formula | Earnings | $112.46 | 1.04x | yes | EPS $6.30 × (8.5 + 2×6.4%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | $10.92 | 10.73x | yes | BV $50.14 × (ROIC 1.7% / WACC 7.6%) |
| P/Sales Sector | Relative | $96.03 | 1.22x | yes | Revenue $0.95B × sector P/S 2.5x |
| PEG Fair Value | Relative | $60.48 | 1.94x | yes | EPS $6.30 × (PEG 1.5 × growth 6.4% (input: historical EPS growth)) → PE 9.6x |
| Earnings Yield | Earnings | $68.11 | 1.72x | yes | EPS $6.30 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net debt | $543.6m |
| Net debt / NOPAT (after-tax) | 3.48x |
| Net debt / operating income (pre-tax) | 2.55x |
| Interest coverage | 6.9x |
| Share count CAGR (dilution) | 0.1% |
| Burning cash | no |
Bullet Takeaways
McGrath RentCorp rents physical assets it owns: modular buildings (Mobile Modular), portable storage containers, and electronic test equipment (TRS-RenTelco). The business is a recurring-rental machine, and Q1 2026 rental revenues grew 5% to $162.2 million on total revenue of $198.5 million.
The moat is the owned fleet plus diversified demand. The same modular units serve classrooms, construction field offices, healthcare facilities, and government, so no single end market drives the business, and rental rates reset to market on renewal.
At about $118 the price is justified by the relative-multiple and growth-DCF frames while the asset and earnings-power models say expensive. The inversion implies essentially no growth is required (about 0.9%), and the dividend has been raised for 35 straight years, now $0.495 quarterly.
Bull Case
Start from the competitive moat, because McGrath's advantage is structural and grounded in the margin and return data. This is an asset-rental business: the company owns a fleet of modular buildings, storage containers, and test equipment, and rents it out on recurring operating leases. The 10-K describes the pricing power that comes with that model, noting that "upon expiration of the initial term, or any extensions, rental rates are reviewed, and when appropriate, are adjusted based on current market conditions." An owned fleet that can be re-rented at rising rates over a long life is a high-return asset, and the numbers show it: the trailing operating margin is about 25.5% and the first-year return on invested capital in the inversion is around 25%. Those are the economics of a durable franchise, not a commodity rental shop.
The demand is diversified in a way that smooths the cycle. The same modular units serve, in the filing's words, "sales offices, construction field offices, health care facilities, church sanctuaries and child care facilities," with "industrial, manufacturing, entertainment and utility companies, as well as governmental agencies" using larger complexes. That breadth means McGrath is not a pure construction-cycle play; education and government demand provide ballast when commercial construction softens. Q1 2026 showed the engine working: rental revenues rose 5%, with Mobile Modular up 4%, Portable Storage up 1%, and TRS-RenTelco up 13%, and management reaffirmed full-year revenue guidance of $945 million to $995 million and adjusted EBITDA of $360 million to $378 million.
The capital discipline is the proof of quality. McGrath has raised its dividend for 35 consecutive years, one of the longest streaks in the market, now at $0.495 quarterly, and it strengthened its position when the WillScot merger was terminated in 2024, collecting a $180 million termination fee and increasing its buyback. The inversion implies the price requires only about 0.9% operating-profit growth, an exceptionally low bar for a business reinvesting in a high-return fleet, and analysts carry a Buy consensus with a median target near $145, above the current price. The bull case is a moat-protected, diversified rental compounder with a 35-year dividend record, priced as if it will barely grow.
Bear Case
The structural concern starts with the balance sheet, because a rental business is only as good as the capital it ties up in its fleet and the debt it uses to fund it. McGrath carries net debt of about $544 million against trailing operating income near $241 million, roughly 2.25 times, and it must keep spending heavily to maintain and grow the fleet: full-year 2026 rental capital expenditure is guided to $180 million to $200 million. That is the catch with an asset-rental model: the recurring revenue is real, but so is the perpetual reinvestment required to produce it, and a large share of operating cash flow goes right back into buying more equipment rather than to shareholders. If utilization or rental rates soften, the fleet becomes a depreciating asset earning less than its cost of capital, and the debt funding it does not shrink.
The growth is slow and the recent results show it stalling at the margin. Total revenue grew just 2% in the quarter, net income actually slipped to $27.0 million ($1.10 per share) from $28.2 million ($1.15), and adjusted EBITDA edged down 1%. The business is mature, and the diversification that smooths the cycle also caps the upside: education and government demand is stable but not fast-growing, and the construction-linked portion is exposed to a slowing economy and higher rates that pressure the projects McGrath's modulars serve. A business growing low single digits is fine, but the price has to reflect that, and the static frames say it does not.
That valuation gap is the crux. The asset and earnings-power frames sit well below the price: earnings power value near $47, the FCF-yield frame near $58, simple excess return near $68, all far under the roughly $118 price (June 27, 2026), with a blended X-ray near $94. Only the relative-multiple and growth-DCF frames reach the price. For an income-and-quality name that is fine if the dividend and modest growth are the whole thesis, but it means a buyer is paying a premium to the asset value of the fleet, betting that the rental rates and utilization that justify the premium hold through a softer construction and capital-spending environment. The bear conclusion is a good, slow-growing rental franchise priced above what its assets and current earnings power support, with a capital-hungry balance sheet and decelerating results.
Valuation
McGrath is valued as a steady industrial rental compounder, with the price justified by the relative-multiple and growth-DCF frames while the asset-based and earnings-power models say expensive. The conservative frames cluster below the price (earnings power value $47, the FCF-yield frame $58, simple excess return $68, the Graham number $84), the relative and exit-multiple frames bracket it (relative valuation $110, exit-multiple DCF $120, EV/EBITDA relative $103), and the perpetual-growth DCF reaches above it ($160). The blended X-ray is near $94. The inversion implies only about 0.9% company-wide operating-profit growth, an undemanding bar.
The high inversion band reflects the rental-asset model crediting the fleet's earning power and the very low required growth; the low X-ray reflects the conservative asset and earnings-power frames. The operating-income basis also diverges between sources by about 16%, so the precise numbers should be read as a range, not a point. The cleanest takeaway is that the price sits between the conservative frames (which say expensive) and the rental-asset frames (which say cheap), and the truth depends on whether the fleet keeps earning its mid-20s returns.
The practical read: McGrath at about $118 is a quality, low-growth rental business priced above its asset value but supported by a high-return fleet, a 35-year dividend record, and analyst targets near $145. The sensitivity is about 7 points of implied growth per point of cost of capital, so it is rate-sensitive like most capital-heavy rental models. The case for the price is the durable fleet economics and the dividend; the risk is that utilization or rates soften and the conservative frames near $47 to $94 become the more honest anchor.
Catalysts
Q1 2026 (reported late April) was a steady but soft quarter. Total revenue rose 2% to $198.5 million, with rental revenues up 5% to $162.2 million (Mobile Modular up 4%, Portable Storage up 1%, TRS-RenTelco up 13%), but net income slipped to $27.0 million ($1.10 per share) from $28.2 million ($1.15), and adjusted EBITDA edged down 1% to $74.1 million.
Management reaffirmed full-year 2026 guidance: total revenue of $945 million to $995 million, adjusted EBITDA of $360 million to $378 million, and rental capital expenditure of $180 million to $200 million.
The capital-return story is the 35th consecutive annual dividend increase, now $0.495 quarterly, one of the longest streaks among public companies. The 2024 termination of the WillScot merger left McGrath with a $180 million termination fee and an enlarged buyback, strengthening its standalone position.
Analyst sentiment is constructive: a Buy consensus with a median target near $145, above the current price. The swing factors are fleet utilization and rental-rate trends across the modular and storage segments, end-market demand (education and government as ballast, construction as the cyclical swing), the pace of rental capital spending against the balance sheet, and continued dividend growth.
Peer Cohorts (Per Segment, With Filing Citations)
Core business (reported)
- WSC (WILLSCOT HOLDINGS CORPORATION)
- (no filing in the citation store)
- CTOS (Custom Truck One Source, Inc.)
- (no filing in the citation store)
- FTAI (FTAI AVIATION LTD.)
- (no filing in the citation store)
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.