Back to top

Image: Bigstock

United Rentals (URI) Looks Promising: Invest in the Stock

Read MoreHide Full Article

United Rentals, Inc.’s (URI - Free Report) shares have been riding high since the release of its second-quarter 2022 results. Ever since this Zacks Rank #2 (Buy) company reported quarterly numbers on Jul 27, its shares have risen 18.1%, outperforming the industry’s growth of 10.8%. In fact, the company’s shares have gained 21.9% over the past three months, outperforming the industry’s 10.8%.

United Rentals has been witnessing widespread growth in rental revenues. Even its new upbeat 2022 guidance exhibits broad-based growth across its verticals, with persistent growth opportunities for non-residential and industrial verticals. In terms of project types, large data centers, infrastructure projects, distribution centers and manufacturing holds promise.

The stock has a long-term earnings growth rate of 17.6%, which highlights its inherent strength. We believe that United Rentals offers a sound investment opportunity, as evident from its VGM Score of A.

The Zacks Consensus Estimate has witnessed an uptrend over the past 30 days as analysts raised their estimates. Over the said time frame, the Zacks Consensus Estimate of $31.03 and $34.71 for 2022 and 2023 has increased $1.60 and $2.05, respectively.

Zacks Investment Research
Image Source: Zacks Investment Research

Let’s take a look at the factors supporting the growth.

Solid End-Market Demand: United Rentals has been witnessing widespread growth in rental revenues. Precisely, during the second quarter, rental revenue grew 26.2%. Rental revenues from non-residential construction verticals were up 27% year over year, and the same from infrastructure was up 15%.

Further, used equipment continues to be strong, supported by better pricing and a higher percentage of fleet sold through its most profitable retail channel. The strength of the used equipment market is a key indicator of the rental industry’s performance.

U.S. Administration’s Infrastructural Push: United Rentals and other construction companies are expected to benefit from strong global trends in infrastructure modernization, energy transition, national security, and a potential super-cycle in global supply chain investments. Importantly, United Rentals is expected to maintain positive momentum in the near term as the company’s solutions are closely aligned with President Biden’s policies and industry trends.

The need to rebuild the nation’s deteriorating roads and bridges and fund new climate-resilient and broadband initiatives is expected to aid URI. The company expects a diverse mix of federal projects for road and bridge work, water control, harbors and ports, and the power grid, which will drive growth in 2023 as well.

Upbeat View: Backed by solid first-half 2022 results and the recently completed acquisitions, the company once again lifted its 2022 guidance to reflect stronger growth in the core rental business and improve the used equipment business. The optimism was supported by positive customer sentiments and used equipment demand as well as persistent share growth opportunities for certain non-residential verticals, including power, healthcare, distribution and technology. For 2022, United Rentals expects higher demand across the end markets served, with 18.9% year-over-year growth at the midpoint of the guided revenue range. This will be supported by a significant investment in growth capital.

Solid ROE & Higher Earnings Growth Rate: URI’s superior return on equity (ROE) is also indicative of its growth potential. The company’s ROE currently stands at 33.8%, higher than the industry’s 6.3%. This indicates efficiency in using shareholders’ funds and the ability to generate profit with minimum capital usage.

The Zacks Consensus Estimate for 2022 earnings of $31.03 per share implies 40.7% year-over-year growth. The solid growth rate depicts the stock's promising future.

3 Top-Ranked Construction Stocks Hogging the Limelight

Other top-ranked stocks, which warrant a look in the Construction sector, include  Arcosa (ACA - Free Report) , Installed Building Products (IBP - Free Report) and Primoris Services Corporation (PRIM - Free Report) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Arcosa — sporting a Zacks Rank #1 — is a manufacturer of infrastructure-related products and services which serves construction, energy and transportation markets.

ACA’s expected earnings growth rate for fiscal 2022 is 7.8%. The Zacks Consensus Estimate for current-year earnings has improved 13.7% over the past 30 days.

Installed Building Products — currently carrying a Zacks Rank #2 — operates as a residential insulation installer in the United States.

IBP’s expected earnings growth rate for 2022 is 48.5%. The Zacks Consensus Estimate for current-year earnings has improved 11.4% over the past 30 days.

Primoris — a Zacks Rank #2 company — is a specialty contractor company operating in the United States and Canada. A robust backlog level of more than $4 billion and solid contract awards in the Energy/Renewables and Utilities segments depict incredible momentum in the future despite the supply chain and permitting challenges. Utility-scale solar projects continued to drive the progress of the Energy/Renewables segment.

Primoris’ earnings for 2022 are expected to grow by 18.4%.