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Bull of the Day: United Rentals (URI)

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United Rentals, Inc. (URI - Free Report) is on a roll as the North American economy heats up. This Zacks Rank #1 (Strong Buy) is expected to grow earnings by over 40% in 2018.

United Rentals is the largest equipment rental company in the world with 997 rental locations in 49 states and every Canadian province.

In 2017, it acquired Neff Corporation for $1.3 billion which has boosted its employee count to 14,800. The company serves construction and industrial customers, utilities, municipalities, the oil and gas sector, homeowners and others.

A Strong Fourth Quarter to Close Out a Record Year

On Jan 24, United Rentals reported its fourth quarter and full year 2017 results. It met on the Zacks Consensus for the fourth quarter, reporting $3.34.

But the earnings meet was only a small part of the story.

Rental revenue rose 26.8% with owned rental revenue jumping 26.5%.

Time utilization increased 70 basis points year-over-year to 70%.

It's saw strength in the Trench, Power and Pump segment, where rental revenue rose 38.7% year-over-year and the rental gross margin improved by 230 basis points to 47.5%.

For the year, rental rates rose 2%. The company exceeded its upper-band of guidance on total revenue, adjusted EBITDA and free cash flow.

Tax Reform Implications

United Rentals is one company that will see a big benefit from the tax reform.

On a net basis, and leaving all other factors unchanged, United Rentals estimates it will benefit by at least $250 million.

It also expects an effective tax rate of about 25% in 2018.

Share Repurchase Program Re-Started

The company has had a $1 billion share repurchase program since November 2015. It was paused in October 2016 due to mergers and acquisitions.

At that time, it had completed $627 million of the program.

In 2017, it bought $28 million worth of stock, leaving $345 million remaining.

In 2018, it intends to complete the program. In other words, it's buying back $345 million in shares this year.

Analysts Are Bullish

There was a lot to like in the fourth quarter report and 2018 outlook.

The analysts are bullish about both 2018 and 2019.

The 2018 Zacks Consensus Estimate jumped to $15.05 from $13.48 after the earnings report. That's earnings growth of 42.1%.

Similarly, 2019's consensus rose to $17.11 from $15.20. That's further earnings growth of 13.7%.

Shares at Multi-Year Highs

Shares have been on a tear the last 2 years, rising 277.8%.

But because the earnings are also rising at a dramatic clip, this stock is still cheap.

It trades with a forward P/E of just 12, which is well under the average of the S&P 500 of 19.3.

For investors looking for a way to invest in the growing US economy, especially in construction and energy, then United Rentals is one to keep on your short list.

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

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