In 2016, I thought United Rentals (URI, Financial) could rise to over $100 in three years, and the company has far surpassed that prediction. Currently, the stock is trading just below $150 after narrowly missing $190 back in January and then again in March.
United Rentals is the largest equipment rental company in North America, with 11% of the market share. The company’s equipment is typically used for big construction projects. It takes in the majority of its revenue from rentals. It offers a range of light to heavy construction industrial equipment (e.g., pumps, generators, forklifts, backhoes, cranes, bulldozers, aerial lifts and compressors); general tools and equipment (e.g., hand tools, garden, and landscaping equipment); and special event equipment (e.g., tents, tables, and chairs).
It's been a tough year for industrial stocks as a whole, thanks to depressed earnings, the ongoing trade war and even housing worries. United Rentals, however, keeps moving higher financially, and the real pressure this year for the company specifically was due to acquisitions and integration.
But the long-term potential has never been better. And, priced at just nine times forward earnings, investors have a solid buying opportunity right now.
The company has already successfully integrated two large acquisitions this year, NES and Neff. United paid $965 million for NES Rentals and $1.3 billion for Neff Corp., both smaller peers that help further solidify the company’s dominance in the market. The two additions totaled about $800 million in revenues and $360 million in Ebitda on United Rentals' income statement.
The company’s most recent acquisition was BakerCorp, which helps industrial customers pump, store and filter everything from frac water to bio-sludge. United Rentals paid $715 million for $79 million in Ebita on $295 million in revenue. The company anticipates north of $20 million in cost savings while adding 25,000 units of fleet, 46 branches in North America and 11 in Europe and over 900 employees.
When the deal was announced in July, United Rentals updated guidance to factor in BakerCorp, stating that it now expects revenue of $7.64 billion to $7.84 billion, which could translate into $1.64 billion of net income, 13% of the current market capitalization. At this price, the stock is still good for a double.
Construction projects across America will continue to fuel growth at United Rentals. Billions of dollars are being spent reshaping major cities. Even if the economy slows or reverses in the short term, long-term investors are only going to witness more commerical development.
Disclosure: I am not long/short United Rentals.
