Back to top

Bull of the Day: United Rentals (URI)

Read MoreHide Full Article

United Rentals, Inc. (URI - Free Report) crushed the consensus again in the third quarter as the North American construction industry heats up. This Zacks Rank #1 (Strong Buy) is expected to grow earnings by 20% this year.

United Rentals is the largest equipment rental company in the world with 1,019 rental locations in 49 states and every Canadian province.

It recently acquired Neff Corporation for $1.3 billion which has boosted its employee count to 15,000. The company serves construction and industrial customers, utilities, municipalities, the oil and gas sector, homeowners and others.

A Big Beat in the Third Quarter

On October 18, United Rentals reported its third quarter results and blew by the Zacks Consensus by $0.25. Earnings were $3.25 versus the consensus of $3.00.

Rental revenue jumped 16.2% year-over-year as it saw a 0.9% increase in rental rates. This was the first increase in rental rates in 8 quarters.

Time utilization jumped by 160 basis points to a third quarter record of 71.9%, with each month of the quarter also establishing a new monthly record.

The quarter was boosted by the Trench, Power and Pump specialty segment which saw rental revenue soar 32.9%.

Non-residential construction and infrastructure also increased by double digits.

Optimistic About the Fourth Quarter

United Rentals was optimistic about the outlook for the fourth quarter saying that it expected market activity to "exceed normal seasonality."

Additionally, it has seen some recovery in its oil and gas segment, including in Canada which was up 9% in the quarter and is on the rebound.

The company also commented on the hurricanes, saying that it was shipping fleet to its national accounts in Puerto Rico and saw $6 million in revenue in September from hurricane activities.

It increased capex by $200 million this year as it expects severe need by some customers.

As a result, the analysts are bullish on the full year 2017 as well as on 2018.

The 2017 Zacks Consensus Estimate jumped to $10.38 from $9.82 as 7 estimates were revised higher. That is earnings growth of 20%.

Similarly, the 2018 Zacks Consensus Estimate also rose to $12.08 from $10.86, which would be earnings growth of another 16.4%.

Shares at New Highs

Shares have soared 33% this year on optimism over growing strength in non-residential construction, even without an infrastructure spending bill.

Because earnings are also on the rise, valuations are still attractive.

United Rentals trades with a forward P/E of just 13.4. It has a PEG ratio of 0.9. A PEG under 1.0 usually indicates a company is undervalued.

But United Rentals is cyclical. Where are we in the current cycle?

There are still positive trends which could boost the company further including possible corporate tax cuts, rising oil prices, further Canadian recovery and more infrastructure spending.

If you're an investor looking for a way to cash in on the heating up on the economy, especially in construction, then United Rentals is one you should keep on your short list.

[In full disclosure, the author of this article owns shares of URI in her personal portfolio.]

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.      

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.   

See the pot trades we're targeting>>

In-Depth Zacks Research for the Tickers Above

Normally $25 each - click below to receive one report FREE:

United Rentals, Inc. (URI) - free report >>

More from Zacks Bull of the Day

You May Like