United Rentals’ Large Rental Fleet & Construction Rebound Aid

United Rentals Inc. URI is benefitting from its extensive and diverse rental fleet, which allows it to serve a large range of customers across the world. Also, strengthening construction activities and cost management are helping it retain profitability. The world’s largest equipment-rental company is also gaining from business-expansion strategy across the product portfolio and geographic boundaries.

Over the past month, shares of this Zacks Rank #2 (Buy) company have gained 14% compared with its industry’s 8.2% growth. Estimates for 2020 have also trended 20.3% upward in the past 30 days, reflecting analysts’ faith in the company’s prospects. Encouragingly, its earnings are likely to grow 12% in the next five years.


 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Despite fighting headwinds like uncertain market conditions, higher costs and low demand in industrial as well as oil and gas market, the company is currently a great pick in terms of value investment, supported by a Value Score of A.

Let’s delve deeper into the factors.

Substantial Growth Drivers

United Rentals has a long history of surpassing analysts’ expectations for earnings as well as revenues. Recently, its second-quarter 2020 earnings and revenues beat the Zacks Consensus Estimate by 90.7% and 7%, respectively, despite the COVID-19 impacts.

The company’s rental fleet is the largest and most comprehensive in the industry. It keeps on monitoring repair and maintenance expenses to satisfy customers’ demands and optimize utilization levels. United Rentals enjoys strong brand recognition, which enables it to draw customers and build customer loyalty.

The company keeps expanding geographic borders and product portfolio through acquisitions and joint ventures. Meanwhile, the BlueLine acquisition in late 2018 continues to remain significant as it boosts its capacity across the largest metropolitan areas in North America, including both the U.S. coasts, the Gulf South and Ontario.

Moreover, the mix of Specialty (which includes higher-margin trench, power and fluid solutions) in the portfolio is a great contributor to the top-line performance. Over the past five years, Specialty’s contribution to its pro-forma revenues has increased from less than 7% to nearly 27%. Notably, it has been witnessing higher demand for specialty equipment.

The U.S. construction market is also set to rebound in the second half of 2020, with a significant jump in residential and non-residential activities. With the strengthening construction market, fleet on rent improved steadily, rebounding by almost 14% during the second quarter, which translates to more than $1 billion of incremental fleet on rent. Also, Trump’s impetus to kickstart the country and spur economic growth with a $1-trillion infrastructure package in June 2020 is likely to boost the company’s growth.

The company’s trailing 12-month return on equity (“ROE”) is another indication of its growth potential. Its ROE for the trailing 12 months is 37.2% compared with the industry’s 10.8%, reflecting the company’s efficient usage of its shareholders’ funds.

Other Key Picks

Other top-ranked stocks in the same industry include Installed Building Products, Inc. IBP, Gibraltar Industries, Inc. ROCK and TopBuild Corp. BLD, each sporting a Zacks Rank #1.

Installed Building, Gibraltar and TopBuild have surpassed the Zacks Consensus Estimates for earnings in each of the trailing four quarters, with an average surprise of 23.3%, 37.8% and 16%, respectively.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>

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