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Bull of the Day: United Rentals (URI)

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United Rentals (URI - Free Report) is a Zacks Rank #1 (Strong Buy) that is the largest equipment rental company in the world.  The company offers 4,000 classes of equipment for rent to customers in construction, industrials, utilities, municipalities, government agencies, independent contractors and individuals. These customers use the rented equipment for projects that range from simple repairs to major renovations.

The Stamford, CT based company has over 19,000 full time employees and is valued at over $11 billion. URI has a Zacks Style Score of “A” in Value which is derived from its low Forward PE, which is currently at 13.

The stock collapsed in during the March panic, but has returned to February levels. This move higher in the stock price is signaling that traders see opportunity looking forward. With a potential $1 Trillion infrastructure bill on the way later this year, the stock has a shot to hit all time highs by the end of the 2020.

The COVID Impact and Earnings

The March panic caused the stock to fall from its February highs of $160, all the way to a low of $58.85.  The fear in March that business would be frozen caused a massive opportunity as the stock has rallied over 170% from the lows and is back at the $160 level.  

In May, the company reported a slight beat on revenues and 43% surprise beat on EPS. Like most companies, United Rentals withdrew it guidance due to the pandemic. The company is set to report on July 29th which will give clarity to investors on how the last three months have gone. URI has a great track record of beating on EPS, with the last miss coming back in January of 2016.

United rentals CEO Matt Flannery had the following comments on the quarter:

“Our business tracked as we expected through early March, when the outlook for 2020 became far more uncertain due to the pandemic. While we’ve withdrawn our guidance at this time, we're confident in our ability to leverage the resiliency inherent in our business model. We’re in the strongest position in our history to respond to this crisis and to prepare for the recovery to come.”

Estimates Rising

Analysts cut estimates drastically during the early stages of the pandemic. However, we are now starting to see a rise in analyst estimates over the last month. This is a positive sign as we head into earnings on July 29th.

Over the last 30 days, estimates have ticked higher by 7% for the current quarter, going from $1.70 to $1.82. For the current year, we have seen a 1.9% rise over that same time frame.

Infrastructure Boom on the Way?

Because of the uncertainty caused by the pandemic, it wouldn’t be surprising to see URI miss expectations. However, the bull side might look past this quarter to what might be coming later in the year.

Congress is working on an infrastructure bill that could be up to $1.5 trillion that would be used on everything from roads to broadband. URI would benefit from an increase in non-residential construction and infrastructure activity that would come with such a large spending bill.  

The Technical Take

The stock is above all moving averages, with the 200-day at $136. With earnings coming up, investors looking for a pullback can target the 50-day at $143. However, a surprise beat or news on infrastructure spending could send this stock to 2019 highs at $170.

Looking at upside Fibonacci targets, the 161.8% level around $225 looks like a great spot for long-term investors to take profits. This is found by drawing a Fibonacci retracement from 2020 highs to the March lows.

In Summary

United Rentals has had a volatile year when it comes to its stock price, but the fact that’s its back to Pre-COVID levels in positive. Investors are looking forward to what maybe come, instead of the fear that swept the market over the last few months.

For investors that appreciate a value story, with a potential catalyst in infrastructure, this stock one to keep an eye on. 

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