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Why You Must Retain United Rentals (URI) Despite Share Price Fall

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The construction sector has had a mixed performance for the year 2021. Housing and related industries have witnessed solid demand trends along with supply-chain disruptions and shortage of skilled labor. United Rentals Inc. (URI - Free Report) , the largest equipment rental company in the world, has also been witnessing the same.

The company has been grappling with higher fuel costs, increased operating expenses and competitive pressure. Also, a volatile energy market and the   cyclical nature of the business are pressing concerns.

Defying all the odds arising from the COVID-19 pandemic and other industry woes, URI is set to benefit from an extensive and diverse rental fleet, which allows it to serve a large range of customers across the world. A significant boost in infrastructural and public construction spending, solid end-market demand, expansion strategy along with accelerated momentum in the underlying business are gaining traction.

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The company’s shares have declined 8.6% in the past three months against the Zacks Building Products – Miscellaneous industry’s 5.7% rise. Although investors are a bit pessimistic due to its share price decline in the past three months, 2022 earnings prospects look good. The company has solid prospects, as is evident from the Zacks Consensus Estimate for 2022 earnings of $26.34 per share, which improved 2.3% in the past 30 days. This indicates 20.2% year-over-year growth. URI has a solid history of surpassing earnings estimates. Its earnings surpassed analysts’ expectations in 12 of the last 15 quarters.

Apart from impressive prospects for the next year, United Rentals has a solid VGM Score of A. Also, the company is a great pick in terms of growth and value investment, supported by a Growth and Value Score of A.

URI’s trailing 12-month return on equity (“ROE”) is another indication of growth potential. ROE in the trailing 12 months is 28.9% compared with the industry’s 9.4%, reflecting efficient usage of its shareholders’ funds.

Here are a few factors supporting the growth of this Zacks Rank #3 (Hold) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Biden’s Infrastructural Move

United Rentals is expected to benefit from strong global trends in infrastructure modernization, energy transition, national security and a potential super-cycle in global supply chain investments. Importantly, United Rentals should continue to maintain positive momentum in the near term, as the company’s solutions are closely aligned with President Biden’s policies and industry trends.

Solid Underlying Business

For the first nine months of 2021, equipment rentals represented 84.5% of the total revenues. There has been a return of activity in United Rentals’ manufacturing sector after more than a year of industrial recession. The construction verticals, which have been most resilient amid the COVID-19 pandemic, are still going strong. In terms of end markets, solid activity was witnessed in power, HVAC, pharma, biotech, warehousing, distribution, data center and hospitals. Non-residential construction (the company’s largest revenue base) has been registering an improvement of late. It has been witnessing a rising demand for specialty construction products, which are significantly contributing to the trench, power and fluid solutions segment’s revenues. Also, the demand for used equipment remained solid, post the easing of pandemic-led restrictions.

Acquisitions

United Rentals is expanding geographic borders and the product portfolio through acquisitions as well as joint ventures. The company offers approximately 4,300 classes of rental equipment for rent on an hourly, daily, weekly or monthly basis.

On May 25, URI’s subsidiary, UR Merger Sub VI Corporation acquired General Finance Corporation. General Finance — which operates as Pac-Van and Container King in the United States and Canada, and as Royal Wolf in Australia and New Zealand — is a leading provider of mobile storage as well as modular office space. United Rentals is expected to benefit from General Finance’s expertise in different markets. Also, the acquisition enhanced its growth capacity and provided the company with a leading position in the rental market for mobile storage as well as office solutions.

Some Better-Ranked Stocks in the Same Industry

James Hardie Industries plc (JHX - Free Report) : Based in Dublin, Ireland, this company is one of the leading producers and marketers of high-performance fiber cement as well as fiber gypsum building solutions. The company’s all three regions served continue to gain momentum on the execution of the global strategy of driving high-value product mix penetration.

James Hardie currently carries a Zacks Rank #1 and has gained 39.4% YTD. Earnings are expected to grow 34% in fiscal 2022 and 18.8% in fiscal 2023.

CRH plc (CRH - Free Report) : This Zacks Rank #2 (Buy) firm manufactures cement, concrete products, aggregates, roofing, insulation and other building materials.

The company’s expected earnings growth rate for the next year is 10.4%. The stock has declined 24.2% in the year-to-date period.

ToughBuilt Industries, Inc. (TBLT - Free Report) : Incorporated in the State of Nevada, the company designs,  manufactures,  and  distributes  innovative  tools  and  accessories  to  the  building  industry.

ToughBuilt currently carries a Zacks Rank #2. The stock has declined 47.4% in the year-to-date period. The company’s earnings for 2022 are expected to grow 36.8%.

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