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5 Reasons to Add United Rentals (URI) to Your Portfolio Now

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Headquarted in Stamford, CT, United Rentals, Inc. (URI - Free Report) is one of North America's largest equipment rental companies with branches in the majority of the states and several Canadian provinces. The company offers different types of equipment on rent to construction and industrial companies, manufacturers, utilities, municipalities, homeowners and others. This Zacks Rank #2 (Buy) company has solid prospects and should make a valuable addition to your portfolio.

Stock Price & Returns

Shares of United Rentals returned over 105% in the last one year, much higher than the Building Products - Miscellaneous industry’s gain of 25%. The recent NES acquisition is expected to help the company maintain its solid price performance in the quarters ahead.


 
Further, the company’s Return on Equity in the trailing 12 months was an impressive 44.2%, better than the industry’s 10.6%. This indicates that the company reinvests more efficiently in comparison to its peers.

NES Acquisition

Recently, United Rentals completed the acquisition of NES Rentals for $965 million. The acquisition expands the company’s geographic footprint in key markets like East Coast, Gulf States and Midwest. It is also expected to strengthen relationships with local and strategic accounts in the construction and industrial sectors, thus enhancing cross-selling capabilities.

Moreover, the acquisition is likely to leverage United Rentals’ technology and infrastructure. Management believes that the addition of NES will boost its revenues, earnings, EBITDA, free cash flow and overall scale.

Valuation Looks Rational

United Rentals has a Value Style Score of ‘A’, putting it in the top 20% of all stocks we cover from this perspective. The Value Style Score condenses all valuation metrics into one actionable score that helps investors steer clear of ‘value traps’ and identify stocks that are truly trading at a discount.

The company is currently trading at a trailing 12-months Price/Earnings (P/E) ratio of 13.90 while the industry average is at 20.33. Moreover, its forward P/E ratio (price compared to this year’s earnings) stands lower at 13.30. This indicates that a slightly more value-oriented path may be ahead for United Rentals.

Coming to sales, the company is currently trading at a Price/Sales (P/S) ratio of 1.79, significantly lower than the S&P 500 average of 3.08. Some prefer this metric over other value-focused ones because sales are harder to manipulate than earnings.

Often overlooked, the Price/Cash flow (P/CF) ratio can be a great indicator of value. This ratio doesn’t take amortization and depreciation into account and gives an accurate picture of the financial health of a business. United Rentals has a P/CF of 5.66, lower than the industry’s average of 16.23.

All these ratios point at the undervaluation of the company in comparison to its industry peers. Thus, it is a good time for investors to consider the stock.

Earnings History & Estimates

United Rentals beat earnings estimates in each of the trailing four quarters, at an average of 12.75%.

Furthermore, upward estimate revision reflects strength in the stock’s prospects. Over the last 60 days, the Zacks Consensus Estimate for current year’s earnings has moved up 1.9%, reflecting two upward revisions versus none downwards. Also, next year’s earnings estimates inched up 2% on the back of one upward revision as against no downward revision.You can see the consensus estimate trend and recent price action for the stock in the chart below:

United Rentals, Inc. Price and Consensus

 

Positive earnings estimate revision indicates analysts’ confidence in the stock and add to the optimism. Full-year 2017 earnings are expected to grow 7.6% while the same is likely to rise 9.3% in 2018.

VGM Score

United Rentals has a VGM score of ‘A’. The VGM Score rates each stock on their combined weighted styles, helping to identify those with the most attractive value, best growth, and promising momentum across the board.

Stocks with a VGM Score of ‘A’ or ‘B’ and a Zacks Rank #1 or 2 provide even better returns, on an average. The combination of United Rentals’ Zacks Rank #2 and VGM score of ‘A’ makes us reasonably confident about the stock.

Other Key Picks

Other favorably ranked stocks in the same industry include Owens Corning Inc (OC - Free Report) , Grafton Group PLC (GROUF - Free Report) and NCI Building Systems, Inc. .

Owens Corning sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The company surpassed earnings estimates in all of the past four quarters, with an average beat of 35.13%.

Grafton, a Zacks Rank #2 stock, is expected to witness 13.8% earnings growth in 2017.

NCI Building, also a Zacks Rank #2 stock, is expected to witness 6.9% earnings growth in fiscal 2017.

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