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United Rentals' New Acquisition, Explained

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United Rentals' New Acquisition, Explained
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United Rentals, Inc. (NYSE: URI), the world's biggest construction equipment rental provider, confirmed on Wednesday it plans on acquiring rival chain Neff Corp (NYSE: NEFF) for $1.3 billion, or $25 per share.

UBS's Steven Fisher commented in a research report that the acquisition of Neff represents a " manageable bolt-on deal." United Rentals has the necessary resources to make this deal work, including a strong cash flow which gives management the ability to delever. Also important to consider is the tax benefits and cost savings make Neff's 4.5x multiple attractive relative to United Rental's 5.8x 2017E multiple.

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United Rentals' acquisition is also expected to be 6 percent accretive to its earnings per share, the analyst continued. Perhaps more important, United Rental's fleet mix won't materially change with the deal as its earth-moving equipment remains 10 to 15 percent of the overall mix.

Fisher maintains a Neutral rating on United Rentals' stock with an unchanged $125 price target.

Oppenheimer: Secular Growth Opportunity

Neff is among the top 10 biggest equipment rental companies mostly based in the southeastern U.S. and is best known for its 54-percent original equipment cost business mix of earth-moving equipment, Oppenheimer's Scott Schneeberger commented in a research report.

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Based on the acquisition alone United Rentals' earth-moving equipment mix will move from 11 percent to 14 percent, the analyst continued. This gives the company better exposure to the lesser penetrated category which also represents a secular growth opportunity.

"We view the deal as financially favorable in 2018 and more so on 2019 on a pro forma basis," Schneeberger wrote.

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Latest Ratings for NEFF

DateFirmActionFromTo
Mar 2017Bank of AmericaUpgradesUnderperformBuy
Nov 2016JefferiesDowngradesBuyHold
Apr 2016Avondale PartnersMaintainsMarket Perform

View More Analyst Ratings for NEFF
View the Latest Analyst Ratings

Posted-In: construction equipment Neff Scott SchneebergerAnalyst Color News Reiteration M&A Analyst Ratings Best of Benzinga

 

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