MGRC

We rate MCGRATH RENTCORP (MGRC) as a Hold with a composite score of 57.6/100 at a current price of $114.50. The stock presents a mixed quantitative picture — neither compelling enough to warrant new accumulation nor weak enough to justify selling for existing holders. Our factors are split, and the overall profile suggests patience is warranted.

The rating is primarily driven by strength in stability (86th percentile) and value (70th percentile), which together account for the majority of the composite score. All factors score above the 40th percentile, indicating no material weakness in the quantitative profile. We assign a Narrow Moat rating (48/100), Low uncertainty, and Exemplary capital allocation.

Key items to watch: sustainability of the current growth rate. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

MCGRATH RENTCORP holds a top-quartile position (#0 of 50) within the Services sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 57.6/100 places it at rank #947 in our full 7,333-stock universe. At $2.9B in market capitalization, MCGRATH RENTCORP is a mid-cap player in the Services space, which limits certain scale advantages but may allow for more agile strategic execution.

The near-term outlook is constructive, with revenue growing at 21% and momentum in the 64th percentile confirming positive market sentiment and institutional accumulation. The combination of strong top-line growth and favorable price dynamics suggests the company is executing well on its growth strategy. Investment factor at the 45th percentile indicates reinvestment patterns that investors should monitor for sustainability.

The margin cascade tells an important story: gross margins of 47% (-12.2pp vs sector) narrow to operating margins of 25% (+21.9pp vs sector) and net margins of 25.5%, yielding a gross-to-net conversion rate of 54%. This efficient conversion suggests well-controlled operating costs and limited margin leakage between the gross and net levels.

At a current price of $114.50, MCGRATH RENTCORP appears undervalued relative to its fundamentals. Our value factor score of 70/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at a P/E of 10.8x (a 54% discount to the sector median of 23.7x), EV/EBITDA of 11.9x (near the sector median), P/B of 2.3x, P/S of 2.9x. The below-sector P/E suggests possible undervaluation or the market pricing in near-term headwinds.

We assign a Low uncertainty rating to MCGRATH RENTCORP. The company exhibits strong financial stability with a beta of 0.76, conservative leverage (46% D/E), and a stability factor in the 86th percentile. The predictable nature of the business model and solid financial position reduce the range of potential outcomes, giving us confidence in our fair value estimate.

We identify no major risk factors at this time. The company's stability factor sits at the 86th percentile with quality at the 49th percentile, both of which support our low-risk assessment. The absence of material leverage, profitability, or volatility concerns reduces the likelihood of a permanent capital loss scenario.

Key risk mitigants include: healthy gross margins of 47% provide a buffer against cost pressures; above-average stability (86th percentile) suggests predictable business dynamics. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate MCGRATH RENTCORP's capital allocation as Exemplary. Management demonstrates a strong track record of balancing reinvestment with shareholder returns, evidenced by returns on equity of 21.4%, disciplined leverage (46% D/E), a 1.64% dividend yield. Exemplary allocators typically generate returns on equity above 20% while maintaining debt-to-equity below 50% — MCGRATH RENTCORP meets this high bar.

The balance sheet remains conservatively managed, providing financial flexibility for opportunistic investments while maintaining a margin of safety for shareholders. The company returns capital via a 1.64% dividend yield, and the combination of 10.9% return on assets and controlled leverage suggests management is deploying capital at rates well above the cost of capital — the hallmark of exemplary stewardship.

In summary, MCGRATH RENTCORP receives a Hold rating with a composite score of 57.6/100 (rank #947 of 7,333). Our quantitative framework assigns a Narrow Moat (48/100, trend: stable), Low uncertainty, and Exemplary capital allocation. The average factor score across quality, value, momentum, stability, and investment is 63/100.

Our analysis supports a neutral stance on MCGRATH RENTCORP. While the quantitative profile is not weak enough to warrant selling, it lacks the multi-factor strength required for a buy recommendation. Existing holders should maintain positions and monitor for catalysts — either fundamental improvement or valuation compression — that would shift the risk-reward balance.