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United Rentals (URI) Up 7.8% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for United Rentals (URI - Free Report) . Shares have added about 7.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is United Rentals due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

United Rentals Q2 Earnings Lag, Rise Y/Y, 2021 View Up

United Rentals, Inc. reported second-quarter 2021 results, wherein both earnings and revenues missed their respective Zacks Consensus Estimate.

Nonetheless, both the top and bottom lines grew on a year-over-year basis, given continued recovery across its construction and industrial markets. The company raised its previously announced 2021 guidance on the back of strong visibility into end-markets served and completed buyouts.

Matthew Flannery, CEO of United Rentals, said, “Looking forward, we remain encouraged by the gains we’ve seen in end-marketindicators, including our customers’ sentiment and project visibility. We are raising our guidance to reflectthe expected contribution from our recently completed acquisitions, as well as accelerated momentum inour underlying business. Combined, we believe this positions us well to deliver strong growth and returnsin the second half of the year.”

Inside the Headlines

Adjusted earnings of $4.66 per share missed the consensus estimate of $4.81 by 3.1%. Nonetheless, the reported figure increased 26.6% from the prior-year figure of $3.68 per share. Total revenues of $2.287 billion fell shy of the consensus mark of $2.209 billion by 3.5% but grew 17.9% year over year.

Rental revenues increased 18.8% from the year-ago quarter to $1.951 billion. Fleet productivity was up 17.8% year over year and improved 1,800 basis points (bps) sequentially backed by better fleet absorption.

Used equipment sales increased 10.2% from a year ago. Adjusted gross margin of 47.9% expanded 190 bps due to higher pricing, which marked the third consecutive quarter of increase. Used equipment proceeds were 59% of original equipment cost or OEC, up 500 bps from the year-ago period.

Segment Discussion

General Rentals: Segment equipment rentals’ revenues grew 16.8% year over year to $1.466 billion. Rental gross margin expanded 250 bps year over year to 35.9%, courtesy of a decrease in depreciation expense (as a percentage of revenues).

Trench, Power and Pump/Specialty: Segmental rental revenues increased 25.3% year over year to $485 million. Rentals gross margin, however, decreased 40 bps on a year-over-year basis to 46.4% due to the dilutive impact of the General Finance buyout.

Margins

The company’s total equipment rentals gross margin rose 200 bps year over year to 28.5%.

Adjusted EBITDA also grew 11.1% from the prior-year quarter to $999 million. However, adjusted EBITDA margin contracted 270 bps to 43.7% for the quarter owing to lower rental margin, thanks to higher bonus accrual and increased delivery expense

Balance Sheet

United Rentals had cash and cash equivalents of $336 million as of Jun 30, 2021 compared with $202 million at 2020-end. Total liquidity was $2.826 billion at quarter-end and it has no note maturities until 2026.

Cash from operating activities increased 43.9% to $1,176 million but free cash flow fell 46.5% from the prior-year quarter to $437 million due to higher purchases of rental equipment.

Raised 2021 Guidance

Backed by solid first-half 2021 results and recently completed acquisitions, the company lifted its full-year 2021 financial guidance. Total revenues are now expected in the range of $9.45-$9.75 billion versus $9.05-$9.45 billion projected earlier. This indicates a solid increase from $8.530 billion reported in 2020.

Adjusted EBITDA is now projected between $4.225 billion and $4.375 billion compared with prior projection of $4.1-$4.3 billion. The current projection indicates a massive jump from the year-ago figure of $3.932 billion.

Net rental capital expenditures after gross purchases are now projected to be $1.5-$1.7 billion compared with $1.25-$1.45 billion expected earlier, indicating an increase from $961 million in 2020.

Net cash provided by operating activities is anticipated in the range of $3.25-$3.65 billion versus $3.1-$3.5 billion projected earlier, suggesting a rise from $2.658 billion in 2020.

Free cash flow (excluding the impact of merger and restructuring-related payments) is expected in the range of $1.6-$1.8 billion compared with $1.7-$1.9 billion anticipated earlier. This suggests a decrease from $2.454 billion reported in 2020.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

At this time, United Rentals has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, United Rentals has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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