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Why You Should Buy United Rentals (URI) Stock Right Now

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United Rentals, Inc. (URI - Free Report) shares have rallied 54.7% in the past year, outperforming the 20% gain of the industry it belongs to. Being the largest equipment rental company in the world, United Rentals enjoys strong brand recognition, enabling it to draw more customers and build customer loyalty.

The price performance of the company is backed by an impressive earnings history. United Rentals surpassed earnings estimates consistently in eight of the past nine quarters. Moreover, earnings estimates have risen in the past few weeks, suggesting bullish sentiments on United Rentals.

Over the past 30 days, the Zacks Consensus Estimate for 2018 earnings rose 2.4% and that of 2.6% for 2019. This bullish trend justifies the stock’s Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.



 

What Makes United Rentals a Solid Pick?

Solid Growth Prospects: The company’s main strategy is to improve profitability by providing superior standard of service to customers, optimizing customer mix 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.

The company has a robust earnings growth profile. The company’s earnings grew 23% per year on an average over the last three years (as of 2017). The company’s top line also increased 10% per year on an average over the same time period. The company has gradually increased its industrial exposure along with non-cyclical specialty acquaintance.

United Rentals has solid growth prospects, as is evident from the Zacks Consensus Estimate for earnings of $3.53 per share for the current year, which is expected to grow 46.3% year over year (higher than the industry average of 29.3%). Meanwhile, the company’s sales are expected to increase 13.9% in 2018, higher than the industry average of 4.6%.

Expansion Via Acquisitions: United Rentals is expanding its geographic borders and product portfolio through acquisitions and joint ventures. In March 2018, United Rentals acquired the assets of Industrial Rental Services, a leading U.S. provider of two-way radio solutions and industrial blinds, primarily in the Gulf and West Coast regions. The acquisition expands United Rentals’ Tool Solutions specialty rental fleet by more than 35,000 isolation blinds, flanges and racking systems for industrial applications as well as approximately 16,000 radios, repeaters and accessories for plant maintenance, and construction personnel.

The two most important acquisitions made in 2017 were of Neff Corporation and NES Rentals. Neff Corporation enhanced the company’s earthmoving equipment and efficiencies of scale in key market areas. On the other hand, the acquisition of NES Rentals expanded United Rentals’ geographic footprint in key markets like East Coast, Gulf States and Midwest, and further established the company as an aerial supplier.

United Rentals’ adjusted EBITDA margin expanded 140 basis points year over year in the last reported quarter, as it continues to benefit from its integration of two sizable 2017 acquisitions, namely NES and Neff.

Valuation Looks Rational: United Rentals has a Value Style Score of A, putting it in the top 20% of all the stocks we cover from this perspective.

The company currently has a trailing 12-month P/E ratio of 13.9, below the industry’s average of 20.8x. This indicates that the stock is undervalued compared to its peers. Also, the company has a forward P/E ratio of 10.6, lower than the industry average of 17x, so it is fair to say that a slightly more value-oriented path may be ahead for the stock in the near term.

Also, the company currently has a trailing 12-month EV/EBITDA ratio of 8.5, below the industry average of 27.5x.

Positive Construction Market: Demand for United Rentals’ products is largely related to the performance of the broader construction market. Per the latest report from the United States Department of Commerce, construction spending in April surged to its highest settlement since January 2016. This also marks its biggest increase since 2012. Per the U.S. Chamber of Commerce’s Commercial Construction Index, 93% of the total contracts in the country would witness a surge in profit margins by 2019.

As such, demand for United Rentals’ products should increase as well, thereby driving its revenues. Also, the industry to which it belongs has a decent industry rank (among the top 12% out of 265 industries), signaling that companies in this space are likely to benefit from favorable broader factors in the immediate future.

Other Stocks to Consider

Other top-ranked stocks in the same space are Century Communities, Inc. (CCS - Free Report) , Beazer Homes USA, Inc. (BZH - Free Report) and Lennar Corporation (LEN - Free Report) .

Century Communities sports a Zacks Rank #1 and its earnings for the current year are likely to increase 47%.

Beazer Homes is a Zacks Rank #2 stock and its earnings for the current quarter are expected to grow 78.3%.

Lennar carries a Zacks Rank #2 and its fiscal 2018 earnings are expected to grow 18.4%.

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