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Is a Beat Likely for United Rentals (URI) in Q2 Earnings?

Zacks Equity Research

United Rentals, Inc. URI is scheduled to report second-quarter 2019 results on Jul 17, after market close.

The company surpassed the Zacks Consensus Estimate by 8.2% in the last reported quarter. In fact, United Rentals has a strong earnings and revenue surprise history. The company’s earnings surpassed expectations in 12 of the past 13 quarters, while revenues topped estimates in 11 of the trailing 13 quarters.

Its first-quarter revenues and earnings grew 22.1% and 15.3% year over year, respectively. The upside can be attributed to broad-based growth across geographic markets and vertical end markets served by the company. Solid integration of major acquisitions also boosted the quarterly results. It further gained traction from investments in fleet and technology.

How are Estimates Faring?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release.

The Zacks Consensus Estimate for the quarter to be reported has declined from $4.54 to $4.48 in the past seven days. Nonetheless, this reflects an increase of 16.4% from the year-ago earnings of $3.85 per share. Revenues are expected to be $2.27 billion, up 20.3% year over year.

Let’s see how things are shaping up for this announcement.

United Rentals, Inc. Price and EPS Surprise

United Rentals, Inc. Price and EPS Surprise

United Rentals, Inc. price-eps-surprise | United Rentals, Inc. Quote

Key Factors

Higher-Margin Specialty Business to Aid Margin: In the to-be-reported quarter, United Rentals is expected to benefit from increasing mix of Specialty (which includes fluid solutions, power & HVAC, trench safety, and tool solutions) in the portfolio. The Specialty business carries higher return metrics with a less cyclical profile, partly due to solutions-based selling approach. United Rentals now offers a wide range of products to a diverse group of customers and geographies that dampen cyclicality of the construction market. Over the past five years, Specialty has experienced an upward momentum over the past five years, from less than 7% to more than 20% of its pro-forma revenues.

Solid Inorganic Strategy to Aid Top-Line Growth: United Rentals follows a systematic inorganic strategy to expand its geographic borders and product portfolio that is expected to contribute to top-line growth in the second quarter.

The buyout of WesternOne Rentals & Sales LP, a leading regional equipment rental provider in Western Canada, in November 2018 has been helping the company to expand services to Alberta, British Columbia and Manitoba. Meanwhile, the acquisition of BlueLine in October 2018 has boosted United Rentals’ capacity across the largest metropolitan areas in North America, including both the U.S. coasts, the Gulf South and Ontario.

Overall, broad-based growth across geographic markets and vertical end markets served by the company (non-residential/infrastructure/residential) is expected to boost revenues and earnings in the to-be-reported quarter.

Equipment Rentals, accounting for nearly 84.8% of its total revenues, is expected to get a boost in the second quarter. The Zacks Consensus Estimate for Equipment Rentals revenues of $2 billion indicates a year-over-year rise of 22.9%.

What the Zacks Model Unveils

Our proven model shows that United Rentals is likely to beat estimates this earnings season. This is because it has the right combination of a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

Earnings ESP: United Rentals has an Earnings ESP of +0.34%. This is because the Most Accurate Estimate of $4.50 per share is pegged higher than the Zacks Consensus Estimate of $4.48. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: United Rentals carries a Zacks Rank #3, which further increases the predictive power of ESP. The positive ESP and its favorable rank make us reasonably confident about an earnings beat this reporting cycle.

Conversely, Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks Worth a Look

Here are some other companies in the Zacks Construction sector, which according to our model have the right combination of elements to post an earnings beat in their respective quarters to be reported.

Arcosa, Inc. ACA has an Earnings ESP of +15.22% and holds a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Rayonier Inc. RYN has an Earnings ESP of +19.15% and carries a Zacks Rank #3.

M.D.C. Holdings, Inc. MDC has an Earnings ESP of +3.96% and a Zacks Rank #1.

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