MCGRATH RENTCORP (MGRC) stock intrinsic value fair value estimate & owner earnings analysis

McGrath RentCorp rents out physical assets and collects lease payments on them. Its largest business rents relocatable modular buildings, mostly classrooms for California school districts and temporary space for commercial and government customers, and it also rents portable storage containers, rents electronic test equipment through TRS-RenTelco, and manufactures new modular classrooms through Enviroplex. Revenue in 2025 was $944 million, about 70% of it recurring rental and rental-related service income. The company sold its liquid containment tank business at the end of 2023 for a $62 million gain, bought the Vesta modular business for roughly $458 million in the same year, and in 2024 collected $180 million to walk away from a merger, so the last three reported years all contain sizable one-off items that we removed before measuring earnings power. Because this is a leasing business, most of the cash it spends on equipment is not upkeep. It buys fleet to expand, and it recovers a large part of the original cost when it later sells used units, usually above book value. We therefore measured owner earnings after subtracting all equipment and property purchases but crediting back the cash received from selling used fleet, which is the strictest reasonable treatment because it charges expansion spending against current earnings. On that basis, and after deducting stock compensation, owner earnings per share were $5.25 in 2021, $2.24 in 2022, negative $1.85 in 2023, $3.96 in 2024 and $5.73 in 2025, averaging about $2.91 over ten years. The swings are almost entirely a function of how hard management was expanding the fleet in a given year, not of profitability. If instead we charge only the fleet spending needed to keep the equipment base intact, which is roughly the annual depreciation on rental equipment offset by the gains realized selling used units, upkeep-only owner earnings were about $6.79 per share in 2024 and $6.39 in 2025. We built our forecast from a normalized figure of about $6.30 per share measured before financing costs, which sits between the two methods and also allows for the fact that a meaningful slice of recent profit comes from deferring taxes on accelerated equipment write-offs, a benefit that shrinks if fleet growth slows. Our base case grows that stream 4% for five years and 3% for five more, fades to 2.5% thereafter and discounts at 9.5%, giving $79 per share. Our bear case assumes a nonresidential construction downturn, softer school spending and used-equipment prices returning to normal, cutting starting earnings to about $4.60 per share with 1.5% growth and an 11.5% discount rate, giving $27. Our bull case assumes continued share gains in modular space and a recovery in test equipment rental, growing 6.5% then 4% at an 8.5% discount rate, giving $137. From each we subtracted the $515 million of borrowings outstanding at year end, about $20.89 per share, against almost no cash. Leverage is moderate at roughly 1.5 times operating earnings before depreciation, and debt was reduced by $75 million during 2025. Fixed obligations beyond that debt are modest. We anchored the margin-of-safety price on the base case and applied roughly a 40% discount. We are moderately confident, call it 70%, in the business itself, which is simple, long-lived and has real pricing power, but far less confident in any single earnings figure for it, because the split between growth and upkeep spending is a judgment call and because gains on selling used equipment supply close to a quarter of upkeep-basis earnings and are cyclical. That combination of a durable franchise and an uncertain earnings measure argues for a wide margin of safety rather than a token one.