We rate Armac High Risk due to its lower stock liquidity and elevated stock volatility. Risks to our target price include: 1) We could be underestimating/overestimating macroeconomic impacts over Armac's ability to increase rental yields and/or improve fleet utilization, depending on how interest rates will evolve and how the economy will respond; 2) it is possible that aggressive competition is bigger (or smaller) than our expectations, driving negative (or positive) impacts over rental yields and fleet growth; 3) lower-than-expected residual value of the sold assets may have impacts over expected long-term return on capital; (4) government incentives for new platform/machine purchases could deteriorate the rent-vs.-buy decision from clients, creating downside risk for the company's pricing strategy and assets residual value; 5) changes in relationships with original equipment manufacturers (OEMs) could lead to deterioration in purchasing conditions, especially in comparison to rivals; and 6) maintenance costs may increase as Armac's fleet ages, or if the company finds challenges to hire and retain specialized personnel.
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