Shares of United Rentals, Inc. (URI) reached a new 52-week high of $119.83 on Sep 3, driven by benefits from the integration of acquisitions, rebound in non-residential construction, implementation of growth strategies, higher rental rates and effort to enhance margins.
The stock closed at notch lower at $118.22 yesterday, with a solid one-year return of about 112.4% and year-to-date return of around 51.7%, outperforming the S&P 500. The average volume of shares traded over the last three months was roughly 1182K.
This Greenwich, CT-based equipment rental and leasing services provider has a market cap of $11.3 billion and long-term expected earnings growth of 19.4%. The company has outperformed the Zacks Consensus Estimate in each of the four trailing quarters with an average positive surprise of 14.2%.
Share price and estimates for United Rentals have been on the rise since it reported a 47% year-over-year increase in its second-quarter 2014 adjusted earnings to $1.65 per share on Jul 16. Earnings beat the Zacks Consensus Estimate of $1.43, delivering a positive earnings surprise of 15%. The improvement was mainly driven by growth in both equipment rentals and sales of new equipment, services and other revenues, and sales of rental equipment.
During the first half of 2014, the company repurchased $228 million worth of shares under its $500 million share repurchase program. United Rentals plans to complete the program by Apr 2015. Further share repurchases will provide support to the stock.
For fiscal 2014, United Rentals increased the lower end of its revenue guidance from $5.45—$5.65 billion to $5.55—$5.65 billion. Adjusted EBITDA guidance for the full year is projected in the range of $2.65–$2.70 billion, up from the previous range of $2.55–$2.65 billion. The company expects an increase in rental rates of approximately 4.5% year over year (increased from the previous expectation of 4%) and time utilization of around 68.5% (unchanged).
United Rentals will benefit from the acquisition of National Pump. The deal marks United Rentals' venture into the pump rental sector, catapulting it to the position of the second largest provider of pump rentals in North America. The deal is expected to be accretive to United Rentals’ free cash flow and earnings per share in 2014. In addition, United Rentals acquired the Power and HVAC (Heating, ventilation and air conditioning) assets of Blue-Stream Services, LLC in May that will help in the expansion of United Rentals’ footprint in the Gulf region and will also offer significant cross-selling opportunities.
Notably, the company will continue to focus on reducing the cycle time for renting equipment, improving accuracy, service quality and efficiency, and cost control, which will lead to an increase in gross margin. Additionally, the company is poised to benefit from a rebound in non-residential construction. United Rentals will also benefit from the implementation of growth strategies, higher rental rates, free cash flow generation, returning cash to shareholders and integrating acquisitions.
United Rentals currently has a Zacks Rank #3 (Hold).
Other Stocks to Consider
Some other stocks worth considering in the sector include Gibraltar Industries, Inc. (ROCK), PGT, Inc. (PGTI) and UCP, Inc. (UCP). All these stocks carry a Zacks Rank #2 (Buy).
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