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United Rentals (URI - Free Report) has provided customers with heavy equipment and benefited from the broader uncertainty in the market. As a Zacks Rank #2 (Buy), it is the Bull of the Day.

Why The Uncertainty Helped

As financial markets began worrying about a potential sequester in September, construction companies decided to put a hold on purchases of new equipment. The thought process was that management did not know what the full impact of new taxes and less government spending would do to their clients and large scale commitments were deferred to shorter term rental opportunities. That ushered in a boom period for United Rentals.

Company Description

United Rentals operates as an equipment rental company. It offers approximately 3,300 classes of equipment for rent to customers comprising construction and industrial companies, manufacturers, utilities, municipalities, homeowners, and government entities. The company's fleet of rental equipment includes general construction and industrial equipment, aerial work platforms and light equipment. Its fleet also comprises trench safety equipment and power and heating, ventilating, and air conditioning equipment. The company was founded in 1997 and is headquartered in Greenwich, Connecticut.

URI Beats Estimates For Six Straight Quarters

Dating back to the September 2011 quarter, URI has done an excellent job of reporting earnings ahead of the Zacks Consensus Estimate. Only one of the six beats was less than 20% ahead of the Zacks Consensus Estimate and that beat (of 8%) was the only earnings report that was followed up by the stock heading lower in the session following the report.

The December 2012 quarter was the most recent report and delivered solid results on the top and bottom lines. Sales of $1.25B were in line with the Zacks Consensus Estimate. Earnings came in at $1.27, $0.24 better than the Zacks Consensus Estimate for an 23% positive earnings surprise. The stock moved higher by about 1% in the session following the release.

Fleet Mix

The following chart comes from the URI presentation and shows the breakout of the $7.2 billion fleet. There are over 400,000 units in the fleet with Aerial comprising the largest segment at 43%. The next largest segment is Forks (16%), followed by Earth Moving (14%). Beyond those three, no other segment accounts for more than 10% of total units.

URI Sees Estimates Moving Higher

Estimates for URI have been rising of late. The Zacks Consensus Estimate for 2013 for URI stood at $4.54 as of June 2012. The consensus since moved higher to $4.63 in September 2012 and now stands at $4.75. Similarly, estimates for 2014 have moved from $5.57 in June 2012 to their current level of $5.92.

One thing I like to see is a strong implied earnings growth rate, and URI has a very strong 24.6% implied rate of growth.


The valuation picture for URI is just great, with one exception. The trailing twelve months PE multiple of 15x is far below the industry average of 50x while the forward PE multiple of 11.5x is also significantly lower than the 26.5x multiple for the industry average. Price to sales sits at 1.4x, nicely lower than the 2.1x industry average. Finally, the exception is book value. The company trades at a slight premium to the industry 3.2x vs the 2.9x industry average. Overall, the valuation looks great and the price to book coming in over 3x will keep some value players away even though the stock trades a deep discount to the industry in terms of PE.

The Chart

The 3 month chart below shows the stock has been benefitting from recent strong earnings and a general lack of commitment to purchase large scale equipment. The enterprise customers have found it more financially flexible to rent booms, lifts and other earth moving equipment than to purchase it outright. With the stock closing in on a new 52 week high, investors should be afraid of this equipment renter.

Brian Bolan is a Stock Strategist for He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio

Brian is also the editor of Follow The Money Trader a trading service that tracks institutional money flows and looks for great stock picks from that data.

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