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Here's Why You Should Buy United Rentals (URI) Stock Now

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United Rentals, Inc. (URI - Free Report) has been benefiting from robust demand across construction and industrial verticals in the United States, as well as Canada. Shares of the company have rallied 11.7% in the past year against its industry’s fall of 5.3%. Being the largest equipment rental company in the world, United Rentals enjoys strong brand recognition, empowering it to attract more customers and build customer loyalty.

Moreover, earnings estimates have risen over the past few weeks, suggesting bullish sentiments on United Rentals. Over the past 30 days, the Zacks Consensus Estimate for 2018 and 2019 earnings has been revised 0.3% and 1% upward, respectively. 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 End-Market Demand to Drive Growth: Factors like an improving economy, modest wage growth, low unemployment levels and positive consumer sentiments raise optimism over the construction sector’s performance. As such, United Rentals has been witnessing higher demand for its products, thereby driving revenues. United Rentals serves three principal end markets for equipment rental in North America, namely industrial and other non-construction, commercial construction and residential construction.

The company expects majority of its end markets to continue experiencing solid demand for equipment rental services through the balance of 2018. Meanwhile, the demand for United Rentals’ services and products is sensitive to the level of exploration, development and production activity of oil and natural gas companies. With substantial part of the company’s revenues coming in from the energy sector, United Rentals is well poised to benefit from any improvement in energy sector activity in 2018. The rise in oil prices has encouraged drilling and production companies to bring back rigs online, in turn adding to broader industrial demand for United Rentals’ equipment.

The company has solid growth prospects, as is evident from the Zacks Consensus Estimate for earnings of $16.10 per share for the current year, which is expected to grow 52% year over year (higher than the industry average of 29.4%). Meanwhile, the company’s sales are expected to increase 17% in 2018, more than the industry average of 4.4%.

Overall, it constitutes a great pick in terms of growth investment, supported by a Growth Score of A.

Strong Inorganic Drive: United Rentals follows systematic inorganic strategies to expand its geographic borders and product portfolio. In early September, United Rentals inked a deal to acquire BlueLine Rental — a top-ten equipment rental company in North America — from a private equity firm, Platinum Equity. The deal, which is anticipated to close by fourth-quarter 2018, will boost the company’s capacity in many of the largest metropolitan areas in North America. Notably, the transaction is in line with United Rentals’ strategy of ‘growing the core’ amid a strong demand environment.

In July 2018, the company announced the acquisition of BakerCorp International Holdings Inc. for $715 million. The deal, slated to close in third-quarter 2018, will boost the specialty rental business in North America and enable it to foray into some European markets.

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 expanded 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.

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 11.9, below the industry’s average of 17.2. This indicates that the stock is undervalued compared to peers. Also, the company has a forward P/E ratio of 9.9, lower than the industry average of 11.7. Hence, it is fair to say that a slightly more value-oriented path may be ahead for the stock in the near term.

Moreover, United Rentals’ trailing 12-month return on equity (ROE) supports its growth potential. The company’s ROE of 39.3% compares favorably with the industry’s 12.4%, which indicates its efficiency in using shareholders’ funds compared with peers.

Other Stocks to Consider

Other top-ranked stocks in the Construction sector include AECOM (ACM - Free Report) , KBR, Inc. (KBR - Free Report) and Fluor Corporation (FLR - Free Report) , each carrying a Zacks Rank #2.

AECOM surpassed earnings estimates in all of the trailing four quarters, resulting in an average positive surprise of 3.15%.

KBR surpassed earnings estimates in three of the trailing four quarters, delivering an average positive surprise of 12.3%.

Fluor’s 2018 earnings are expected to increase 39.3%.

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