United Rentals, Inc.’s (URI - Free Report) shares have gained more than 44% in the last year, outperforming 15.3% growth of its industry. The company’s Project XL initiatives, prudent investments in fleet, accretive acquisitions and robust market demand are expected to drive growth.
Meanwhile, earnings estimates have risen over the past few weeks, suggesting that sentiments on United Rentals are moving in the right direction. Over the last 60 days, the Zacks Consensus Estimate for 2018 earnings rose 0.5% to $15.29 per share. Also, earnings estimates for 2019 have increased 0.6% in the same time frame.
This positive trend signifies bullish analysts’ sentiments, and the company’s Zacks Rank #2 (Buy) indicates robust fundamentals and expectations of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Let’s delve deeper into other factors that make this stock a lucrative pick.
What Makes United Rentals a Solid Pick?
Leading Market Position: United Rentals enjoys a strong brand recognition that enables it to draw customers and enhance customer loyalty. The company offers approximately 3,200 classes of rental equipment on an hourly, daily, weekly or monthly basis.
For 2018, the company’s main strategy is to improve profitability by providing superior standard of service to customers, optimizing customer and fleet mix, strategic acquisitions to expand core equipment rental business along with continued expansion of trench, power and pump footprint, and tools offerings. In particular, United Rentals’ strategy calls for the implementation of Project XL, which is a set of eight specific work streams focused on driving profitable growth through revenue opportunities and generating incremental profitability via cost savings.
Acquisitions to Drive Growth: Apart from the implementation of Project XL, United Rentals remains focused on expanding its geographic borders and product portfolio through acquisitions and joint ventures. The two most important acquisitions made in 2017 were of Neff Corporation and NES Rentals.
Neff Corporation, bought for approximately $1.3 billion, is expected to enhance the company’s earthmoving equipment and efficiencies of scale in key market areas. As part of the deal, United Rentals acquired approximately $860 million worth of fleet based on original equipment cost and 69 branch facilities. Neff’s total revenues in the fourth quarter came in at about $115 million, of which about $96 million was rental revenues. The company is on track to achieve $35 million of cost synergy from the Neff acquisition by the end of year two.
The acquisition of NES Rentals Holdings II, Inc. (“NES”) expands United Rentals’ geographic footprint in key markets like East Coast, Gulf States and Midwest, and further established the company as an aerial supplier. With NES, United Rentals gained a strategic position in earthmoving with almost 40% increase in dirt equipment. United Rentals is on track to garner $40 million or more in cost savings from the NES transaction.
Also, the company expanded its specialty offering with smaller acquisitions, focused on power equipment and site services, in 2017. United Rentals bought power equipment assets from Cummins Inc., thus expanding its Power & HVAC Fleet. This addition will help United Rentals cash in on the strong demand for power solutions in North America.
Solid Estimated EPS Growth: The company’s first-quarter earnings are expected to increase 48.2% year over year. The company’s EPS is expected to grow 44.4% for the current year, higher than the industry’s average projected growth of 31.7%.
In 2019, Fastenal is expected to come up with a decent performance as well, wherein its bottom line is expected to grow 12%.
Meanwhile, the company’s sales are expected to increase 23.3% in the current quarter and 14.3% for the current year. For 2019, the company’s projected sales growth is a healthy 6%.
The above-mentioned tailwinds have made it a great pick in terms of Growth investment. The stock has a Growth Score of A.
Solid VGM Score and ROE: The company has an impressive VGM Score of A. Our VGM Score identifies stocks that have the most attractive value, growth and momentum characteristics. In fact, our research shows that stocks with VGM Scores of A or B when combined with a Zacks Rank #1 or 2, make solid investment choices.
Fastenal’s trailing 12-month return on equity (ROE) supports its growth potential. ROE in the trailing 12 months is 40.2%, while its industry gained 12.3%, reflecting the company’s efficient usage of shareholders’ funds.
Other Key Picks
Other top-ranked stocks in the Zacks Construction sector are Beazer Homes USA, Inc. (BZH - Free Report) , KB Home (KBH - Free Report) and NCI Building Systems, Inc. (NCS - Free Report) .
KB Home, a Zacks Rank #1 company, is expected to see an earnings growth of 50.3% this year.
NCI, also a Zacks Rank #1 stock, is expected to witness 53.8% increase in earnings this year.
Beazer Homes, a Zacks Rank #2 stock, is expected to witness 112.5% growth in earnings this quarter.
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