United Rentals (URI) Up 29.9% in 6 Months: More Room to Run?
United Rentals, Inc.’s URI shares have been riding high since the release of its third-quarter 2022 results. This Zacks Rank #2 (Buy) company reported quarterly numbers on Oct 26, and its shares have gained 21%, outperforming the industry’s growth of 6.7%, since then. In fact, the company’s shares have gained 29.9% over the past six months, outperforming the industry’s 1.3% decline.
United Rentals has been witnessing widespread growth in rental revenues. Even its new upbeat 2022 guidance exhibits broad-based growth across its verticals, with persistent growth opportunities for non-residential and industrial verticals. In terms of project types, large data centers, infrastructure projects, distribution centers and manufacturing holds promise.
The stock has a long-term earnings growth rate of 18.2%, which highlights its inherent strength. We believe that United Rentals offers a sound investment opportunity, as evident from its VGM Score of “A.”
The Zacks Consensus Estimate has witnessed an uptrend over the past 30 days as analysts raised their estimates. Over the said time frame, the Zacks Consensus Estimate of $32.50 and $36.57 for 2022 and 2023 has increased 1.7% and 3.7%, respectively.
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Let’s take a look at the factors supporting the growth.
Solid Performance: The company’s third-quarter results exhibit solid performance, wherein earnings surpassed the Zacks Consensus Estimate by 3% and grew 40.9% year over year. The company has been gaining from the sustained demand in its end markets and the strength of its core rental business. Although total revenues missed the consensus mark, the top line increased 17.5% year over year, given 20% higher rental revenues. This upside was mainly attributable to a broad-based recovery of activity across end markets served by the company.
Fleet productivity was up 8.9% and average original equipment at cost grew 10.6% year over year. The company’s total equipment rentals gross margin rose 130 basis points (bps) year over year to 44.3%. Adjusted EBITDA margin expanded 240 bps to 49.9% for the quarter, owing to higher margins from rental revenues and used equipment sales.
Higher Infrastructural Spending & Solid 2023 Prospects: United Rentals and other construction companies are expected to benefit from strong global trends in infrastructure modernization, energy transition, national security, and a potential super-cycle in global supply-chain investments. Notably, United Rentals is expected to maintain positive momentum in the near term as the company’s solutions are closely aligned with President Biden’s policies and industry trends.
The need to rebuild the nation’s deteriorating roads and bridges, and fund new climate-resilient and broadband initiatives is expected to help URI. The company expects a diverse mix of federal projects for road and bridge work, water control, harbors and ports and the power grid, which will drive growth in 2023. URI sees substantial opportunities in 2023 across federally funded infrastructure projects, industrial manufacturing, energy and power. It expects to deliver another year of profitable growth, strong cash flow, and attractive returns for our shareholders.
Upbeat View: Backed by solid results in the first nine months of 2022 and the recently completed acquisitions, the company lifted its 2022 guidance during the third-quarter earnings call to reflect stronger growth in the core rental business. The optimism was supported by positive customer sentiments, contractor backlogs and solid visibility.
Total revenues are now expected in the range of $11.5-$11.7 billion versus $11.4-$11.7 billion projected earlier. This indicates an increase from $9.72 billion reported in 2021. Adjusted EBITDA is now projected between $5.5 billion and $5.6 billion compared with the prior projection of $5.4-$5.55 billion. The current projection indicates a jump from the year-ago figure of $4.41 billion.
Net cash provided by operating activities is anticipated in the range of $4.05-$4.4 billion (compared with $3.85-$4.25 billion expected earlier), suggesting a rise from $3.69 billion in 2021.
3 Top-Ranked Construction Stocks Hogging the Limelight
Other top-ranked stocks, which warrant a look in the Construction sector, include:
EMCOR Group, Inc. EME — carrying a Zacks Rank #2 — is one of the leading providers of mechanical and electrical construction, industrial and energy infrastructure, as well as building services for a diverse range of businesses.
EME’s expected earnings growth rates for 2022 and 2023 are 10.2% and 17%, respectively. The Zacks Consensus Estimate for current-year and the next-year earnings have improved 0.6% and 13%, respectively, over the past 30 days.
Sterling Infrastructure, Inc. STRL — also carrying a Zacks Rank #2 — has been benefiting from broad-based growth across the e-infrastructure, building and transportation solutions segments.
STRL’s expected earnings growth rates for 2022 and 2023 are 47.4% and 6.3%, respectively. The Zacks Consensus Estimate for current-year and next-year earnings have improved 4.3% and 3.4%, respectively, over the past 30 days.
Altair Engineering Inc. ALTR — also carrying a Zacks Rank #2 — provides software and cloud solutions in simulation, high-performance computing, data analytics and AI worldwide.
ALTR’s expected earnings growth rate for 2022 and 2023 is pegged at 10.6% and 21.5%, respectively.
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