United Rentals Still A Buy, Expect Macro Environment To Get Better, Jefferies Says

In a report published Thursday, Jefferies analyst Justin Jordan maintained a Buy rating and price target of $110 on United Rentals, Inc. URI. The analyst expects the stock to see some negative reaction to the 2015 guidance reset.

For Q2, the company reported modest revenue growth of 3.5 percent. Rental rates increased 1.5 percent due to energy softness. The headline EBITDA and EPS for the quarter beat the consensus forecasts.

The analyst expects investor to focus on the revised 2015 guidance, which calls for a 5 percent cut to the EBITDA outlook, along with a small 0.5 percent cut to the rental rates, indicating negative rates during 2H15. Jordan also expects attention to be focused on "decelerating rental revenues, reduced time utilization and fading rental rate momentum."

The guidance has been revised due to incrementally challenging year-on-year comps expected in 2H15, driven by energy softness. The revision suggests that the impact of energy would be greater than previously expected by the Street.

According to the Jefferies report, "Energy concerns are not new, particularly as URI has underperformed the S&P 500 by over 40 percent over past 12 months, buffeted by energy concerns & fears regarding energy contagion impacting wider non-residential construction market."

However, Jordan also added, "Whilst short-term URI sentiment may be dictated by guidance reset & rising oil inventories/declining oil price, investors should remember underlying equipment rental macro remains supportive."