United Rentals (URI - Snapshot Report) has provided
customers with heavy equipment and benefited from the broader
uncertainty in the market. As a Zacks Rank #2 (Buy), it is the
Bull of the Day.
Why The Uncertainty Helped
As financial markets began worrying about a potential sequester in
September, construction companies decided to put a hold on
purchases of new equipment. The thought process was that
management did not know what the full impact of new taxes and less
government spending would do to their clients and large scale
commitments were deferred to shorter term rental opportunities.
That ushered in a boom period for United Rentals.
United Rentals operates as an equipment rental company. It offers
approximately 3,300 classes of equipment for rent to customers
comprising construction and industrial companies, manufacturers,
utilities, municipalities, homeowners, and government entities.
The company's fleet of rental equipment includes general
construction and industrial equipment, aerial work platforms and
light equipment. Its fleet also comprises trench safety equipment
and power and heating, ventilating, and air conditioning
equipment. The company was founded in 1997 and is headquartered in
URI Beats Estimates For Six Straight Quarters
Dating back to the September 2011 quarter, URI has done an
excellent job of reporting earnings ahead of the Zacks Consensus
Estimate. Only one of the six beats was less than 20% ahead of the
Zacks Consensus Estimate and that beat (of 8%) was the only
earnings report that was followed up by the stock heading lower in
the session following the report.
The December 2012 quarter was the most recent report and delivered
solid results on the top and bottom lines. Sales of $1.25B were
in line with the Zacks Consensus Estimate. Earnings came in at
$1.27, $0.24 better than the Zacks Consensus Estimate for an 23%
positive earnings surprise. The stock moved higher by about 1% in
the session following the release.
The following chart comes from the URI presentation and shows the
breakout of the $7.2 billion fleet. There are over 400,000 units
in the fleet with Aerial comprising the largest segment at 43%.
The next largest segment is Forks (16%), followed by Earth Moving
(14%). Beyond those three, no other segment accounts for more than
10% of total units.
URI Sees Estimates Moving Higher
Estimates for URI have been rising of late. The Zacks
Consensus Estimate for 2013 for URI stood at $4.54 as of
June 2012. The consensus since moved higher to $4.63 in September
2012 and now stands at $4.75. Similarly, estimates for 2014 have
moved from $5.57 in June 2012 to their current level of $5.92.
One thing I like to see is a strong implied earnings growth rate,
and URI has a very strong 24.6% implied rate of growth.
The valuation picture for URI is just great, with one exception.
The trailing twelve months PE multiple of 15x is far below the
industry average of 50x while the forward PE multiple of 11.5x is
also significantly lower than the 26.5x multiple for the industry
average. Price to sales sits at 1.4x, nicely lower than the 2.1x
industry average. Finally, the exception is book value. The
company trades at a slight premium to the industry 3.2x vs the
2.9x industry average. Overall, the valuation looks great and the
price to book coming in over 3x will keep some value players away
even though the stock trades a deep discount to the industry in
terms of PE.
The 3 month chart below shows the stock has been benefitting from
recent strong earnings and a general lack of commitment to
purchase large scale equipment. The enterprise customers have
found it more financially flexible to rent booms, lifts and other
earth moving equipment than to purchase it outright. With the
stock closing in on a new 52 week high, investors should be afraid
of this equipment renter.
Brian Bolan is a Stock Strategist
Zacks.com. He is the Editor in charge of the Zacks Home Run Investor
service, a Buy and Hold service where he recommends the
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