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Infrastructural Drive Aids United Rentals (URI) Amid Volatility
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United Rentals, Inc. (URI - Free Report) is well-positioned to benefit from the U.S. administration's ongoing focus on infrastructure modernization and energy transition. Additionally, its diverse rental fleet has significantly contributed to its growth trajectory.
In March 2024, United Rentals acquired Yak, showcasing its strategy to expand its specialty rental business, enhance its one-stop-shop offerings, and leverage opportunities for both secular growth and cross-selling.
United Rentals stock has gained 12.8% year to date, outperforming the Zacks Building Products - Miscellaneous industry’s 4.9% growth. The company has been gaining from the sustained demand in its end markets and the strength of its core rental business.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate has witnessed an uptrend over the past 30 days as analysts raised their estimates. Over the said time frame, the Zacks Consensus Estimate for 2024 earnings increased to $44.01 from $43.71 per share. The estimated figure calls for 8% year-over-year growth.
However, the cyclical nature of the business and volatile oil & natural gas prices are risks.
Let’s take a look at the factors supporting the growth.
High Infrastructural Investment: United Rentals is capitalizing on robust global shifts toward infrastructure modernization, energy transition, and heightened national security concerns. Particularly, United Rentals is poised to sustain its upward trajectory in the foreseeable future, given its solutions closely align with both U.S. governmental policies and prevailing industry dynamics.
The pressing need to revamp the nation's deteriorating infrastructure, coupled with funding for new climate-resilient and broadband initiatives, bodes well for United Rentals. The company anticipates a varied portfolio of federal projects spanning road and bridge renovations, water management, harbor and port enhancements, and upgrades to the power grid, all of which are anticipated to fuel growth throughout 2024.
Robust Rental Revenue Growth: Backed by the company’s multi-year tailwinds in infrastructure, manufacturing, and energy and power, along with strong customer demand, United Rentals has been witnessing widespread growth in rental revenues.
United Rentals exhibited robust performance in the first quarter of 2024, with equipment rentals accounting for 84% of total revenues. The company’s rental revenues increased 6.9% year over year to $2.93 billion, driven by strong demand across various geographies, verticals, and customer segments.
Significant growth in industrial manufacturing and power sectors propelled industrial end markets, while the construction market saw substantial year-over-year growth in both infrastructure and non-residential sectors. Projects in power generation, datacenters, automotive, and infrastructure highlighted this expansion.
Diverse Rental Fleet: United Rentals’ extensive and diverse fleet allows it to serve large customers that require a wide range of equipment. United Rentals now offers a wide range of products to a diverse group of customers and geographies that dampen the cyclicality of the construction market. The specialty business segment achieved another outstanding quarter, showcasing 19% year-over-year growth in first-quarter 2024 rental revenues. In first-quarter 2024, the company opened 15 new cold start locations. For 2024, it plans to open more than 50 specialty cold starts, indicating a rise from 49 in 2023.
Attractive Valuation: With respect to its valuation metrics, on the basis of the forward 12-month price-to-earnings ratio, shares of United Rentals look attractive. The stock is currently trading at 14.2 compared with the S&P 500’s 21.5 and the industry’s 15.93. Again, United Rentals’ trailing 12-month return on equity (ROE) is indicative of growth potential. The company’s ROE of 36.4% compared favorably with the industry’s 13.4%, which signals more efficiency in using shareholders’ funds than peers.
Hurdles to Cross
Business Cyclicality: The equipment business of United Rentals is subject to the cyclical fluctuations of the markets. Both the general rental equipment and Specialty equipment divisions cater to private non-residential construction and industrial activities, which exhibit high cyclicality. Any downturn in these markets directly influences the demand for United Rentals' equipment and rental rates, consequently impacting revenues and operating margins, especially due to fixed costs. A deterioration in economic conditions, particularly within North American construction and industrial sectors, can further exacerbate weaknesses in these end markets.
Volatility in the Energy Sector: The demand for United Rentals' services and products is intricately tied to the level of exploration, development, and production activity within oil and natural gas companies. This activity is significantly influenced by fluctuations in oil and natural gas prices, which have a history of volatility and are expected to remain so in the foreseeable future.
Our Thoughts
Investors considering URI should carefully weigh the balance between potential risks and rewards. The company's recent upward revision in earnings per share (EPS) estimate, coupled with sustained demand in its end markets and the strength of its core rental business, suggest upside potential for the stock price in the near term. Also, we believe that United Rentals, a Zacks Rank #3 (Hold) stock, offers a sound investment opportunity, as evident from its VGM Score of A, solid ROE and attractive valuation.
However, investors may wait for more clarity on how URI navigates the broader economic environment and volatility before making new investment decisions.
Key Picks
Some better-ranked stocks in the Zacks Construction sector are:
Louisiana-Pacific Corporation (LPX - Free Report) presently sports a Zacks Rank of 1 (Strong Buy). LPX delivered a trailing four-quarter earnings surprise of 18.6%, on average. The stock has gained 16.3% year to date (YTD). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for LPX’s 2024 sales and EPS indicates increases of 17% and 79.8%, respectively, from a year ago.
Owens Corning (OC - Free Report) currently carries a Zacks Rank #2 (Buy). OC delivered a trailing four-quarter earnings surprise of 17.4%, on average. The stock has risen 17.2% YTD.
The Zacks Consensus Estimate for OC’s 2024 sales and EPS indicates growth of 16% and 7.4%, respectively, from the prior-year reported levels.
PulteGroup, Inc. (PHM - Free Report) currently carries a Zacks Rank of 2. It has a trailing four-quarter earnings surprise of 12.5%, on average. PHM shares have gained 6.7% YTD.
The consensus estimate for PHM’s 2024 sales and EPS implies increases of 7.9% and 10%, respectively, from the prior-year reported levels.
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Infrastructural Drive Aids United Rentals (URI) Amid Volatility
United Rentals, Inc. (URI - Free Report) is well-positioned to benefit from the U.S. administration's ongoing focus on infrastructure modernization and energy transition. Additionally, its diverse rental fleet has significantly contributed to its growth trajectory.
In March 2024, United Rentals acquired Yak, showcasing its strategy to expand its specialty rental business, enhance its one-stop-shop offerings, and leverage opportunities for both secular growth and cross-selling.
United Rentals stock has gained 12.8% year to date, outperforming the Zacks Building Products - Miscellaneous industry’s 4.9% growth. The company has been gaining from the sustained demand in its end markets and the strength of its core rental business.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate has witnessed an uptrend over the past 30 days as analysts raised their estimates. Over the said time frame, the Zacks Consensus Estimate for 2024 earnings increased to $44.01 from $43.71 per share. The estimated figure calls for 8% year-over-year growth.
However, the cyclical nature of the business and volatile oil & natural gas prices are risks.
Let’s take a look at the factors supporting the growth.
High Infrastructural Investment: United Rentals is capitalizing on robust global shifts toward infrastructure modernization, energy transition, and heightened national security concerns. Particularly, United Rentals is poised to sustain its upward trajectory in the foreseeable future, given its solutions closely align with both U.S. governmental policies and prevailing industry dynamics.
The pressing need to revamp the nation's deteriorating infrastructure, coupled with funding for new climate-resilient and broadband initiatives, bodes well for United Rentals. The company anticipates a varied portfolio of federal projects spanning road and bridge renovations, water management, harbor and port enhancements, and upgrades to the power grid, all of which are anticipated to fuel growth throughout 2024.
Robust Rental Revenue Growth: Backed by the company’s multi-year tailwinds in infrastructure, manufacturing, and energy and power, along with strong customer demand, United Rentals has been witnessing widespread growth in rental revenues.
United Rentals exhibited robust performance in the first quarter of 2024, with equipment rentals accounting for 84% of total revenues. The company’s rental revenues increased 6.9% year over year to $2.93 billion, driven by strong demand across various geographies, verticals, and customer segments.
Significant growth in industrial manufacturing and power sectors propelled industrial end markets, while the construction market saw substantial year-over-year growth in both infrastructure and non-residential sectors. Projects in power generation, datacenters, automotive, and infrastructure highlighted this expansion.
Diverse Rental Fleet: United Rentals’ extensive and diverse fleet allows it to serve large customers that require a wide range of equipment. United Rentals now offers a wide range of products to a diverse group of customers and geographies that dampen the cyclicality of the construction market. The specialty business segment achieved another outstanding quarter, showcasing 19% year-over-year growth in first-quarter 2024 rental revenues. In first-quarter 2024, the company opened 15 new cold start locations. For 2024, it plans to open more than 50 specialty cold starts, indicating a rise from 49 in 2023.
Attractive Valuation: With respect to its valuation metrics, on the basis of the forward 12-month price-to-earnings ratio, shares of United Rentals look attractive. The stock is currently trading at 14.2 compared with the S&P 500’s 21.5 and the industry’s 15.93. Again, United Rentals’ trailing 12-month return on equity (ROE) is indicative of growth potential. The company’s ROE of 36.4% compared favorably with the industry’s 13.4%, which signals more efficiency in using shareholders’ funds than peers.
Hurdles to Cross
Business Cyclicality: The equipment business of United Rentals is subject to the cyclical fluctuations of the markets. Both the general rental equipment and Specialty equipment divisions cater to private non-residential construction and industrial activities, which exhibit high cyclicality. Any downturn in these markets directly influences the demand for United Rentals' equipment and rental rates, consequently impacting revenues and operating margins, especially due to fixed costs. A deterioration in economic conditions, particularly within North American construction and industrial sectors, can further exacerbate weaknesses in these end markets.
Volatility in the Energy Sector: The demand for United Rentals' services and products is intricately tied to the level of exploration, development, and production activity within oil and natural gas companies. This activity is significantly influenced by fluctuations in oil and natural gas prices, which have a history of volatility and are expected to remain so in the foreseeable future.
Our Thoughts
Investors considering URI should carefully weigh the balance between potential risks and rewards. The company's recent upward revision in earnings per share (EPS) estimate, coupled with sustained demand in its end markets and the strength of its core rental business, suggest upside potential for the stock price in the near term. Also, we believe that United Rentals, a Zacks Rank #3 (Hold) stock, offers a sound investment opportunity, as evident from its VGM Score of A, solid ROE and attractive valuation.
However, investors may wait for more clarity on how URI navigates the broader economic environment and volatility before making new investment decisions.
Key Picks
Some better-ranked stocks in the Zacks Construction sector are:
Louisiana-Pacific Corporation (LPX - Free Report) presently sports a Zacks Rank of 1 (Strong Buy). LPX delivered a trailing four-quarter earnings surprise of 18.6%, on average. The stock has gained 16.3% year to date (YTD). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for LPX’s 2024 sales and EPS indicates increases of 17% and 79.8%, respectively, from a year ago.
Owens Corning (OC - Free Report) currently carries a Zacks Rank #2 (Buy). OC delivered a trailing four-quarter earnings surprise of 17.4%, on average. The stock has risen 17.2% YTD.
The Zacks Consensus Estimate for OC’s 2024 sales and EPS indicates growth of 16% and 7.4%, respectively, from the prior-year reported levels.
PulteGroup, Inc. (PHM - Free Report) currently carries a Zacks Rank of 2. It has a trailing four-quarter earnings surprise of 12.5%, on average. PHM shares have gained 6.7% YTD.
The consensus estimate for PHM’s 2024 sales and EPS implies increases of 7.9% and 10%, respectively, from the prior-year reported levels.