United Rentals, Inc.
) rose as much as 3.6% following the rating upgrade from Moody's
Investors Service, the rating unit of
). The upgrade mainly reflects the improvement of United Rentals
credit quality and the expectation of continued revenue growth.
United Rentals now enjoys a Corporate Family Rating (CFR) of B1
that was raised from B2. The new rating is attributable to the
company's economies of scale, product breadth, diversified
customer base and market position.
United Rentals' Probability of Default Rating (PDR) was lifted to
B1-PD from B2-PD. Moody's also upgraded United Rentals' senior
secured notes rating to Ba2 from Ba3, senior unsecured debt
rating to B2 from B3 and senior subordinated notes rating to B3
These upgrades came on the back of improved leverage. According
to Moody's, adjusted basis, the ratio declined from 4.6 times as
of Dec 31, 2012, to 3.9 times as of June 30, 2013. The rating
agency remains optimistic about leverage to further decline to
the mid 3 times area over the next 12-18 months. This is also in
line with the United Rentals' target leverage range of 2.5-3.5.
United Rentals' Speculative Grade Liquidity (SGL) Rating was
affirmed at SGL-3, revealing that the company will maintain an
adequate liquidity in the near term. SGL-3 also reflects feasible
near-term debt maturities and revolver availability under its
$1.9 billion ABL credit facility due 2016.
The ratings outlook was changed to stable from positive. United
Rentals' stable ratings outlook reflects the expectation for
modest improvement in its credit metrics balanced against
cyclical business risks and high leverage.
United Rentals' total revenues improved 22% year over year to
$1.2 billion in second-quarter 2013 mainly due to growth in the
sales of rental equipment and an increase in equipment rentals.
Gross margin expanded 240 basis points (bps) to 47% in the
quarter. In addition, operating margin increased 350 bps to
Moody's feels the company has made significant progress because
of improved demand and the successful integration of RSC Holdings
acquired in 2012. Moreover, the rating agency acknowledged
further improvement in its operating margins, EBITDA margins,
leverage and interest coverage.
However, the rating agency is apprehensive of continued
uncertainties in the sustainability of rental demand and United
Rentals' willingness to allocate capital for stock repurchases.
Moody's also remains cautioned about a large capital investment
program which increases its rental base at the expense of weaker
short-term cash flows and its cyclical business including
Greenwich, CT-based United Rentals is the largest equipment
rental company in the world, with an integrated network of 830
rentals. The company offers for rent about 3,300 classes of
equipment with a total original cost of $7.23 billion.
United Rentals currently retains a Zacks Rank #3 (Hold). Other
companies in the building and construction industry with
favorable Zacks Ranks are
CaesarStone Sdot-Yam Ltd.
). Both hold a Zacks Rank #1 (Strong Buy).
CAESAR STONE SD (CSTE): Free Stock Analysis
MASCO (MAS): Free Stock Analysis Report
MOODYS CORP (MCO): Free Stock Analysis Report
UTD RENTALS INC (URI): Free Stock Analysis
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