RBC Met With United Rentals Management: Here's What Happened

United Rentals, Inc. is set to deliver better performance from its Specialty Rental business this year, according to RBC analyst Seth Weber. The unit accounts for about 19 percent of the total revenues and has roughly $1 billion of fleet, including businesses with historically high return characteristics. However, the Pump Solutions portion of the portfolio has been a source of investor concern over the past year given its out-sized oil/gas exposure. Seber said: "While we expect some energy-related Pump and Canadian-market headwinds to persist, it sounded to us like the overall Specialty platform is off to a good start in 2016 including strength in Trench Safety, Power/HVAC, and Tools, as well as an expectation for greater cross-selling/non-upstream activity to support the Pump Solutions business." URI is expecting Specialty revenue growth in 2016 (including the Pump business) and continues to invest in the platform with the objective of enhancing its position as a single-source provider to national accounts. The business is expected to receive growth capex this year, reflecting typically high returns, plan to open 14 new branches, and aim to and potentially double the business over the next five years (including acquisitions). On Pump solutions business, URI saw positive sequential pricing in January, as it sounds like customer push-back on contracts/rates seen last year has largely abated. "Downstream and petrochem activity sounds good, including demand from projects postponed in 4Q15 now occurring; likewise, URI is seeing gains/traction in commercial/municipal/non energy verticals as it is pushing hard/incenting personnel to cross-sell to gen rental customers. Current year comps should benefit from the anniversary of the steep oil and gas decline in 2015 and 3-5 anticipated new branches," Weber said. Meanwhile, Power/HVAC (portable generators, electrical distribution, temp control equipment) is extending some of the momentum seen in 2015 (same-store revenue of 18 percent) with no margin compression as URI is advancing in verticals like entertainment and finding applications for equipment moved from energy markets. Weber, who has an "outperform" rating on the URI stock, also noted that Trench safety (e.g., excavation support/shoring systems, crossing plates) revenues should continue to benefit from utility/ commercial construction activity and regulatory compliance. Shares of URI were down 33 percent this year. They were trading between $41.90 and $105.83 during the last one year.