Analyst Turns Bullish On United Rentals, Upgrades To Outperform

Analysts at RBC Capital Markets turned bullish on United Rentals, Inc. URI Monday due to an improvement in the rental market and the company's large cash generation. Seth Weber upgraded United Rentals' stock from Sector Perform to Outperform with a price target boosted from $128 to $138.

The Sector Perform rating was based on rental pressure in the industry equipment space and ongoing competition, which was "dampening" United Rentals' prospects, Weber noted in a note. But recent consolidation in space, including United Rentals' acquisition of NES in January gives the company the necessary scale to outperform.

In fact, ongoing consolidation is merely "part of the evolution of the sector" and could create a "stickier model" with more consistent volume, higher returns -- and in turn, higher stock valuations relative to historical levels.

Meanwhile, United Rentals' large exposure to the U.S. construction and energy markets will help the company generate a "robust" free cash flow of $875 million in fiscal 2017. This estimate doesn't factor in any change in policy from the White House concerning a large-scale infrastructure spending.

Recent commentary from privately owned Sunbelt Rentals noted a seasonal uplift in fleet on rent along with record physical utilization for the time of the year, the analyst added. Commentary from U.S. industrial distributors suggests a "healthy" revenue outlook and this bodes well for United Rentals as it tracks closely with overall trends.

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