Shares of United Rentals, Inc. URI have rallied 49.4% so far this year, outperforming the 19.8% gain of the industry it belongs to. Also, the company has outperformed the industry in each of the 4-week, 12-week and 52-week time frames.
The price performance is backed by an impressive earnings history. United Rentals surpassed earnings estimates consistently over the past seven quarters. Moreover, earnings estimates have risen in the past few weeks, suggesting bullish sentiments on United Rentals.
Over the last 30 days, the Zacks Consensus Estimate for 2017 earnings rose 7.5% and 13.9% for 2018. This bullish trend justifies the stock’s Zacks Rank #1 (Strong Buy).
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United Rentals enjoys strong brand recognition, which enables it to draw customers and enhance customer loyalty. The company offers approximately 3,200 classes of rental equipment for rent on an hourly, daily, weekly or monthly basis.
Furthermore, the return on equity delivered in the trailing 12 months is 44.8%, while the industry returned 10.8%, reflecting the company’s efficiency in using shareholders’ funds.
This equipment rental company, with a market cap of $12.6 billion, has strengths in several key areas. Thus, adding the stock to your portfolio seems prudent.
Solid Prospects
United Rentals’ main strategy is to drive profits at its core equipment rental business through revenue growth, margin expansion and operational efficiencies. In particular, the company’s strategy calls for the implementation of Project XL, which is a set of eight specific work streams focused on driving profitable growth through revenue opportunities and generating incremental profitability through cost savings.
Also, United Rentals is focused on expanding its geographic borders and product portfolio through acquisitions and joint ventures. In October 2017, the company acquired Neff Corporation which will enhance United Rentals’ earthmoving equipments capabilities and efficiencies of scale in key market areas.
In August 2017, United Rentals bought power equipment assets from Cummins Inc., which is expected to help United Rentals cash in on the strong demand for power solutions in North America. The acquisition of NES Rentals Holdings II, Inc. in April is expected to strengthen relationships in the construction and industrial sectors and leverage United Rentals’ technology and infrastructure.
Notably, earnings in 2017 are expected to grow 22.1%, way higher than the industry’s projected growth of 7.2%. Additionally, the company’s sales growth in 2017 is projected at around 14.1% compared with the industry’s 0.6%.
Valuation Looks Rational
United Rentals has a Value Style Score of A, putting it into the top 20% of all stocks we cover from this perspective.
The company currently has a trailing 12 month P/E ratio of 15.9, below the industry’s average of 19.7x. This indicates that the stock is undervalued compared to its peers. Also, the company has a forward PE ratio of 14.8, so it is fair to say that a slightly more value-oriented path may be ahead for the stock in the near term as well.
Also, the company currently has a trailing 12-month EV/EBITDA ratio of 6.9, below the industry average of 24.1x.
Construction Market Outlook Positive
Demand for United Rentals’ products is largely related to the performance of the broader construction market. The overall outlook for the construction market is positive. Factors like an improving economy, modest wage growth, low unemployment levels and positive consumer sentiments raise optimism over the sector’s performance. As such, demand for United Rentals’ products should increase as well, thereby driving revenues. The Zacks Construction sector has rallied 19.8% year to date, outperforming the S&P 500’s gain of 16.7%.
Also, the industry to which it belongs has a decent industry rank (among the top 45% out of 265 industries), signaling that companies in this space are likely to benefit from favorable broader factors in the immediate future.
VGM Score
United Rentals has a VGM Score of B. Our VGM Score identifies stocks that have the most attractive value, growth and momentum characteristics. In fact, our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 or 2 (Buy) make solid investment choices.
Other Key Picks
A few other top-ranked stocks in the same industry are Patrick Industries, Inc. PATK, Armstrong World Industries Inc AWI and Gibraltar Industries, Inc. ROCK.
Patrick Industries sports a Zacks Rank #1, while the other two companies carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here
Patrick Industries is expected to witness 24.5% earnings growth in 2017.
Armstrong World Industries is likely to see 21.8% earnings growth in 2017.
Gibraltar Industries surpassed earnings estimates in all of the past four quarters, with an average beat of 12.9%.
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