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United Rentals (URI) Sharpening Competitive Edge: Here's How

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

The company’s shares have gained 110% over the past year, outperforming the Zacks Building Products – Miscellaneous industry’s 25% rise. The price performance was justified by a Momentum Score of B. Momentum investing is all about the idea of following a stock's recent trend, which can be in either direction. In this case, the upside 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. Earnings estimates have moved 0.2% north over the past seven days, depicting analysts’ optimism over its prospects.

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Zacks Investment Research

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

Biden’s Infrastructural Move

United Rentals, and other construction companies like Jacobs Engineering Group Inc. J, AECOM ACM as well as KBR, Inc. KBR 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. Importantly, 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.

Recently, the Senate passed a $1-trillion infrastructure bill after months of negotiation. The bill underscores the need to rebuild the nation’s deteriorating roads and bridges, and fund new climate resilience and broadband initiatives.

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 markets, 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 an 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, on solid pricing. The used equipment market strength is a key indicator of the rental industry’s performance. With $550 billion in new federal spending, the plan would provide $65 billion to enhance high-speed internet access; $110 billion for roads, bridges and other projects; along with $25 billion for airports. It would also recommence and revamp existing infrastructure and transportation programs that are set to expire at the end of September.

Solid 2021 Guidance

Backed by solid business trends and the 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 the 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.

Impressive Earnings Growth Expectation

The company has solid prospects, as is evident from the Zacks Consensus Estimate for 2021 earnings of $21.71 per share, which indicates 24.5% year-over-year growth. United Rentals also has a favorable Growth Score of B.

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KBR, Inc. (KBR) : Free Stock Analysis Report

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Jacobs Engineering Group Inc. (J) : Free Stock Analysis Report

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