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Factors Likely to Shape United Rentals' (URI) Q4 Earnings

Zacks Equity Research

United Rentals, Inc. URI is scheduled to report fourth-quarter 2019 results on Jan 29, after market close.

In the last reported quarter, the company’s earnings and revenues beat the Zacks Consensus Estimate by 7.8% and 1.6%, respectively. Earnings and revenues of this largest equipment rental company grew 25.7% and 17.6%, respectively, from the year-ago reported figures, courtesy of improved demand in construction end-markets served, partly offset by slower industrial growth.

Markedly, United Rentals reported better-than-expected earnings in the last four quarters, with the average positive surprise being 5.9%.

Trend in Estimate Revision

The Zacks Consensus Estimate for the to-be-reported quarter’s earnings has been unchanged at $5.49 per share over the past 30 days. This indicates a 13.2% increase from the year-ago earnings of $4.85 per share. The consensus mark for revenues is $2.41 billion, suggesting a 4.6% year-over-year improvement.

United Rentals, Inc. Price and EPS Surprise

United Rentals, Inc. Price and EPS Surprise

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

Factors at Play

Improved demand in construction end-markets served and diversified product offerings are likely to have benefited United Rentals in the fourth quarter. Broad-based growth across geographic markets and vertical end markets served by the company (non-residential/infrastructure/residential) is expected to have boosted revenues as well as earnings in the fourth quarter. Infrastructure, especially transportation and power, is expected to have been a major tailwind during the quarter.

Buoyed by the above-mentioned tailwinds, Equipment Rentals — accounting for more than 86% of its total revenues — is expected to have generated higher revenues in the fourth quarter. However, lingering economic uncertainty is expected to have reflected on construction and industrial activities, and affected its quarterly revenues to some extent.

The Zacks Consensus Estimate for Equipment Rentals revenues of $2,055 million indicates a 3.3% increase from $1,989 million a year ago but 4.3% decrease from $2,147 million in third-quarter 2019.

Other notable factors include:

Higher-Margin Specialty Business to Aid Margins:  During the quarter, United Rentals is expected to have benefited 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.

Solid Buyouts to Contribute to Revenues: Notable acquisitions — namely WesternOne Rentals & Sales LP, BlueLine and BakerCorp — are expected to have contributed to top-line growth in the fourth quarter.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for United Rentals this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

Earnings ESP: United Rentals has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: It currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks Worth a Look

Here are some 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.

North American Construction Group Ltd. NOA has an Earnings ESP of +14.29% and carries a Zacks Rank #1.

Installed Building Products, Inc. IBP has an Earnings ESP of +3.09% and carries a Zacks Rank #1.

M.D.C. Holdings, Inc. MDC has an Earnings ESP of +2.42% and holds a Zacks Rank #2.

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