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United Rentals (URI) Up More Than 51% YTD: Momentum to Stay?

United Rentals, Inc. URI is poised to benefit from a significant boost in infrastructural and public construction spending. Also, this leading equipment rental company has been gaining from acquisitions and accelerated momentum in underlying business.

The company’s shares have gained 51.5% year to date versus the Zacks Building Products – Miscellaneous industry’s 15% rise. The price performance was backed by an impressive earnings and revenue surprise history. Its earnings surpassed expectations in 25 of the last 28 quarters. The company topped revenue estimates in 23 of the trailing 28 quarters. The trend is expected to continue in the near term, courtesy of its solid performance for second-quarter 2021.

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Recently, the company reported second-quarter 2021 results, wherein earnings and revenues grew 26.6% and 17.9% year over year, respectively, despite missing the respective Zacks Consensus Estimate. It has also lifted its 2021 guidance, given strong business momentum and completed buyouts.

Yet, higher costs and expenses are concerns for United Rentals. Let’s take a look at the factors supporting growth of this Zacks Rank #3 (Hold) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Major Growth Drivers

Biden’s Infrastructural Push: Share price of United Rentals should continue to maintain positive momentum in the near term, as the company’s solutions are closely aligned with President Biden’s policies and industry trends. United Rentals, Jacobs Engineering Group Inc. J, AECOM ACM, KBR, Inc. KBR and other construction companies are expected to benefit from strong global trends in infrastructure modernization, energy transition, national security, and a potential super-cycle in global supply chain investments.

Solid Underlying Business: For first-half 2021, equipment rentals represented 83% of the company’s total revenues. There has been a return of activity in United Rentals’ manufacturing sector after more than a year of industrial recession. The construction verticals, which have been most resilient amid the COVID-19 pandemic, are still going strong. In terms of end market, solid activity was witnessed in power, HVAC, pharma, biotech, warehousing, distribution, data center and hospitals. Non-residential construction (the company’s largest revenue base) has been registering improvement of late. It has been witnessing rising demand for specialty construction products, which are significantly contributing to the trench, power and fluid solutions segment’s revenues. Also, the demand for used equipment remained solid, post the easing of pandemic-led restrictions.

Used equipment sales were strong in the first and second quarters of 2021. The metric increased 28% and 10.2% year over year, respectively, driven by solid pricing. Strength of the used equipment market is a key indicator of the rental industry performance.

Acquisitions: United Rentals is expanding geographic borders and product portfolio through acquisitions as well as joint ventures. On May 25, the company’s subsidiary, UR Merger Sub VI Corporation, acquired General Finance Corporation. General Finance — which operates as Pac-Van and Container King in the United States and Canada, and as Royal Wolf in Australia and New Zealand — is a leading provider of mobile storage as well as modular office space. United Rentals is expected to benefit from General Finance’s expertise in different markets. Also, the acquisition enhanced its growth capacity and provided the company with a leading position in the rental market for mobile storage as well as office solutions.

Upbeat 2021 View: Backed by solid business trends and recently completed acquisitions, the company lifted its full-year 2021 financial guidance during the second-quarter earnings call. Total revenues are now expected in the range of $9.45-$9.75 billion versus $9.05-$9.45 billion projected earlier. This indicates a solid increase from $8.530 billion reported in 2020.

Adjusted EBITDA is now projected between $4.225 billion and $4.375 billion compared with prior projection of $4.1-$4.3 billion. The current projection indicates a massive jump from the year-ago figure of $3.932 billion.

Net cash provided by operating activities is anticipated in the range of $3.25-$3.65 billion versus $3.1-$3.5 billion projected earlier, suggesting a rise from $2.658 billion in 2020.

The company has solid prospects, as is evident from the Zacks Consensus Estimate for 2021 earnings of $21.74 per share, which indicates 24.7% year-over-year growth. United Rentals also has a favorable Growth Score of B.

Headwinds

Higher fuel costs remain a headwind. Also, labor shortages are a problem. Second-quarter cost of equipment rentals (excluding depreciation) — as a percentage of total revenues — increased 220 basis points (bps) year over year. Also, selling, general and administrative expenses — as a percentage of total revenues — rose 180 bps from the prior-year quarter. Adjusted EBITDA margin contracted 270 bps for the second quarter owing to lower rental margin. United Rentals witnessed higher bonus accrual and increase in certain operating expenses, including delivery costs, during the second quarter.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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