Is it Worth Holding United Rentals in Your Portfolio Now?
United Rentals, Inc. URI is poised to gain from its strong inorganic drive, solid end market fundamentals, as well as large and diverse rental fleet. In fact, being the largest equipment rental company in the world, the company enjoys strong brand recognition, enabling it to draw more customers and build customer loyalty.
The company’s shares have rallied 30.5% in the past year, outperforming the 3.7% growth of the industry it belongs to. Notably, the stock has gained more than 9% after reporting better-than-expected second quarter of 2018 earnings on Jul 18, 2018. The company’s earnings as well as revenues increased 62.4% and 18.9% year over year, courtesy of strong volume gains and rates, along with robust demand across construction and industrial verticals in the United States as well as Canada.
Importantly, the price performance of the company is backed by an impressive earnings history. United Rentals consistently surpassed earnings estimates in nine of the past 10 quarters. Moreover, earnings estimates have risen in the past few weeks, suggesting bullish sentiments toward the stock. Also, earnings estimates for the current and next year have moved 0.8% and 0.5% north over the past 30 days.
Currently, United Rentals carries a Zacks Rank #3 (Hold). Let’s delve deeper into the other factors to find out why investors should hold on to the stock at present.
United Rentals’ Systematic Inorganic Efforts Bode Well
United Rentals follows a robust expansion strategy via acquisitions and joint ventures. Earlier this month, United Rentals inked a deal to acquire BlueLine Rental — a top-ten equipment rental company in North America — from a private-equity firm, Platinum Equity. The deal, which is anticipated to close by fourth-quarter 2018, will boost the company’s capacity in many of the largest metropolitan areas in North America.
In July 2018, United Rentals announced the acquisition of BakerCorp International Holdings Inc. for $715 million. The deal, slated to close in third-quarter 2018, will boost the company’s specialty rental business in North America and enable it to foray into some European markets.
In March 2018, United Rentals acquired the assets of Industrial Rental Services, a leading U.S. provider of two-way radio solutions and industrial blinds, primarily in the Gulf and West Coast regions. The acquisition expands its Tool Solutions specialty rental fleet by more than 35,000 isolation blinds, flanges and racking systems for industrial applications, as well as approximately 16,000 radios, repeaters and accessories for plant maintenance, and construction personnel.
Solid End-Market Demand
United Rentals serves the following three principal end markets for equipment rental in North America - industrial and other non-construction, commercial construction and residential construction.
The company expects that the majority of its end markets will continue to experience solid demand for equipment rental services in 2018. Meanwhile, demand for United Rentals’ services and products is sensitive to the level of exploration, development and production activity of oil and natural gas companies. With substantial part of the company’s revenues coming in from the energy sector, United Rentals is well poised to benefit from any improvement in energy sector activity in 2018. The rise in oil prices has encouraged drilling and production companies to bring rigs back online and this adds to the broader industrial demand for United Rentals equipment.
Large and Diverse Rental Fleet
United Rentals’ extensive and diverse fleet allows it to serve a large number of customers that require a wide range of equipment. The company’s rental fleet is the largest and most comprehensive in the industry. It manages its rental fleet through a life-cycle approach that focuses on satisfying customer demand and optimizing utilization levels. As of Jun 30, 2018, the size of the rental fleet was $11.98 billion of original equipment cost (OEC) compared with $11.5 billion on Dec 31, 2017.
Key Picks
Some better-ranked stocks in the Construction sector include Continental Building Products, Inc. CBPX, PGT Innovations, Inc. PGTI, and NCI Building Systems, Inc. NCS. While Continental Building and PGT Innovations sport a Zacks Rank #1 (Strong Buy), NCI carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Continental Building’s earnings for 2018 are expected to increase 52.6%.
PGT Innovations’ 2018 earnings are expected to grow 78.7%.
NCI is expected to record 81.3% earnings growth in fiscal 2018.
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