United Rentals Upgraded to Strong Buy - Analyst Blog

On Apr 10, Zacks Investment Research upgraded United Rentals, Inc. URI to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

The share price and earnings estimates of United Rentals have been trending upward, following its fourth-quarter 2013 results on Jan 22. Adjusted earnings increased 25% year over year to $1.59 per share. The reported figure beat the Zacks Consensus Estimate of $1.45 per share, resulting in a positive earnings surprise of 9.66%. This Greenwich, CT-based equipment rental and leasing services provider has delivered positive earnings surprises in four quarters straight, averaging 8.81%.

Revenues improved 7% year over year to $1.338 billion in the quarter mainly due to growth in both equipment rentals (up 9.4%) and sales of new equipment (up 3%), partly offset by a decline in rental equipment sales (down 5%).

Shares of United Rentals hit a new 52-week high of $96.72 on Apr 1, triggered by the news of completion of its acquisition of National Pump for $780 million. The deal marks United Rentals' venture into the pump rental sector, catapulting it to the position of the second largest provider of pump rentals in North America. The sector looks promising given the rising demand from energy and petrochemical companies that are capitalizing on the booming shale gas market in the U.S. The deal is expected to be accretive to United Rentals' free cash flow and earnings per share in 2014.

United Rentals will benefit from the implementation of growth strategies, higher rental rates, free cash flow generation, returning cash to shareholders and integrating acquisitions. Notably, the company will continue to focus on reducing the cycle time for renting equipment, improving accuracy, service quality and efficiency and cost control, which will lead to an increase in gross margin.

The company had revised its financial outlook after the announcement of the acquisition. United Rentals now expects 2014 revenues in the range of $5.45 billion to $5.65 billion and adjusted 2014 earnings before interest, taxes, depreciation and amortization (EBITDA) between $2.55 billion and $2.65 billion. Additionally, United Rentals intends to complete its $500 million share-buyback program by Apr 2015. The company is also poised to benefit from a rebound in non-residential construction.

Over the last 60 days, the Zacks Consensus Estimate for 2014 has gone up 1.5% to $6.14 per share as 4 of the 10 estimates have moved upward. Over the same time frame, the Zacks Consensus Estimate for 2015 has gone up 1.98% to $7.72 per share as 4 out of 9 estimates have been revised upward.
 
Other Stocks to Consider

Some other stocks worth considering in the sector include Gibraltar Industries, Inc. ROCK, Simpson Manufacturing Co., Inc. SSD and Lincoln Electric Holdings Inc. LECO, holding a Zacks Rank #2 (Buy).