Is United Rentals Stock A Buy At $180?

United Rentals (NYSE:URI), the world’s largest equipment rental company, catering to the residential and commercial construction and the industrials sector. While the company saw demand decline through the Covid-19 related lockdowns, the stock has fared reasonably well rising by about 8% year to date and is up by almost 161% from its March 2020 lows, as economic activity continues to recover with the company also making good progress with its cost reductions and capital expenditures cuts. Could the stock trend higher still or is it poised for a decline? Below, we take a look at some of the trends that have driven United Rentals stock in recent years and what the outlook might  be like for the company.

What Has Driven United Rentals Performance In Recent Years?

Let’s take a look at United Rentals’ performance over the last few years for a sense of how the company has been faring and what has driven its stock price in recent years. United Rentals’ stock declined from around $172 at the end of 2017 to about $103 in 2018, due to concerns surrounding tariffs and their impact on Industrial companies. However, the stock has recovered since then and trades at about $182 presently. While United Rental’s Revenues have grown steadily from around $6.6 billion in 2017 to about $9.4 billion in 2019, driven by growing Rental Revenues and higher sales of rental equipment, Operating Income rose from about $1.5 billion to $2.1 billion. However, Net Income declined slightly over the period, due to an Income Tax benefit recorded in 2017.  United Rental’s P/E multiple has risen from about 8x in 2018 to about 12x presently. See our analysis on What Has Driven United Rentals Stock Over The Last 3 Years? for an overview of what has affected United Rentals’ stock.

Is United Rentals A Buy At Current Levels? 

United Rentals business has been a mixed bag over 2020 as the lockdowns associated with Covid-19 impacted demand for equipment rentals. While Revenues declined by about 8% year-over-year for the first half of 2020 to $4 billion, Net Income fell by about 13%. However, the company’s Free Cash Flows were robust, rising to $1.42 billion for the first six months of the year, up from around $780 million last year, as it cut costs and significantly curtailed capital expenditure on new equipment. It purchased just about $353 million worth of new equipment, a decline of 69% versus last year. Accounting for the CapEx cuts and improving demand over the second half of the year, the company bolstered its Free Cash Flow guidance to as much as $2.2 billion for 2020, marking an increase from about $1.6 billion in 2019. The company could continue to hold back on Capex through 2021, working with older equipment as it looks to conserve cash. Considering the improving demand and cash flows and relatively attractive valuation of just about 12x projected 2020 earnings (well below the broader Industrials sector that trades at over 20x earnings), the stock looks like a reasonably good bet.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Team