Back to top

Image: Bigstock

Infrastructural Push Helps United Rentals (URI) Amid Volatility

Read MoreHide Full Article

United Rentals, Inc. (URI - Free Report) is well-poised on the persistent focus of the U.S. administration for infrastructure modernization and energy transition. Also, a diverse rental fleet has further propelled its growth trajectory.

However, the cyclical nature of the business and volatile oil & natural gas prices are risks.

Factors Supporting Growth

High Infrastructural Investment: United Rentals, alongside construction firms such as Sterling Infrastructure, Inc. (STRL - Free Report) , Fluor Corporation (FLR - Free Report) , and Quanta Services, Inc. (PWR - Free Report) , is capitalizing on robust global shifts toward infrastructure modernization, energy transition, and heightened national security concerns. Particularly, United Rentals is poised to sustain its upward trajectory in the foreseeable future, given its solutions closely align with both U.S. governmental policies and prevailing industry dynamics.

The pressing need to revamp the nation's deteriorating infrastructure, coupled with funding for new climate-resilient and broadband initiatives, bodes well for United Rentals. The company anticipates a varied portfolio of federal projects spanning road and bridge renovations, water management, harbor and port enhancements, and upgrades to the power grid, all of which are anticipated to fuel growth throughout 2024.

Robust Rental Revenue Growth: Backed by the company’s multi-year tailwinds in infrastructure, manufacturing, and energy and power, along with strong customer demand, United Rentals has been witnessing widespread growth in rental revenues. In the fourth quarter of 2023, rental revenues grew 13.5% to $3.12 billion, year over year. The company witnessed robust demand across geographies, verticals, and customer segments.

Industrial manufacturing and power drove substantial growth in industrial end markets. In construction markets, both infrastructure and non-residential sectors exhibited solid year-over-year growth as customers initiated diverse projects, including battery plants, semiconductor-related jobs, power, infrastructure, and data centers.

Diverse Rental Fleet: United Rentals’ extensive and diverse fleet allows it to serve large customers that require a wide range of equipment. United Rentals now offers a wide range of products to a diverse group of customers and geographies that dampen the cyclicality of the construction market. The specialty business segment achieved another outstanding quarter, showcasing 14.6% year-over-year growth in fourth-quarter 2023 rental revenues. Within the specialty sector, URI successfully launched 10 new locations during the quarter, thereby contributing to a total of 49 new specialty locations opened throughout the year.

Hurdles to Cross

Business Cyclicality: The equipment business of United Rentals is subject to the cyclical fluctuations of the markets. Both the general rental equipment and Specialty equipment divisions cater to private non-residential construction and industrial activities, which exhibit high cyclicality. Any downturn in these markets directly influences the demand for United Rentals' equipment and rental rates, consequently impacting revenues and operating margins, especially due to fixed costs. A deterioration in economic conditions, particularly within North American construction and industrial sectors, can further exacerbate weaknesses in these end markets.

Volatility in the Energy Sector: The demand for United Rentals' services and products is intricately tied to the level of exploration, development, and production activity within oil and natural gas companies. This activity is significantly influenced by fluctuations in oil and natural gas prices, which have a history of volatility and are expected to remain so in the foreseeable future.

Performance of Other Companies

Sterling Infrastructure: The company, a leader in heavy civil infrastructure construction and residential construction projects, showcased remarkable financial progress in 2023, witnessing substantial boosts in revenues, net income, and earnings per share. Notably, its financial milestones, including a backlog surpassing $2 billion, underscore its robust market standing and promising revenue prospects ahead.

Fluor: The company is currently monitoring a list of potential projects that exceed its existing backlog by notable figures. The primary opportunities driving this demand include those in the chemicals sector, closely followed by energy transition, fuel production, as well as mining and metals and big data. In 2023, Fluor successfully secured consolidated new awards amounting to $19.52 billion, with a book-to-burn ratio of 1.3x, which aligned with its full-year plan to achieve a book-to-burn ratio exceeding 1.

Quanta Services: The demand for Quanta's infrastructure solutions, essential for facilitating energy transition efforts and improving reliability, safety, and efficiency, continued to surge. Quanta is strongly positioned to capitalize on increased infrastructure investment fueled by energy transition imperatives, technological advancements, and initiatives aimed at enhancing grid resilience and security. This is underscored by its formidable backlog, reaching $30.1 billion as of Dec 31, 2023.

Published in