Opinions
David Burrows
United Rentals
URI-N
TOP PICK
Jan 31, 2018
Stock price when the opinion was issued
You might be interested:
URI had a better-than-expected 2023 outlook and started its first dividend. Brokers have raised target prices.
There have been some recessionary and demand concerns, and the sector has been very weak in the past two weeks, but at 8X earnings things look fine to us here.
Outlook is supported by strong demand due to significant federal spending programs and large industrial projects.
Amid slowing economic growth, URI is poised to sustain double-digit gains in 2023.
Annual 2022 equipment revenue expansion of 23% was the highest in the past decade.
In the quarter, General Rental gains of 19% outpaced Specialty's 18%, as large rental companies continue to significantly outperform the market. Adjusted Ebitda margin in 4Q expanded 280 bps to 50%, highest since 3Q18.
Ample free cash flow supports a long-awaited dividend and share buybacks for a total 2023 outlay of $1.4 billion.
Unlock Premium - Try 5i Free
Quality company. Suffered a while ago due to worries of recession. Cyclical, as people only rent when they have a lot of confidence in projects. Recovered because people are seeing the end of the hiking cycle, economy continues to be strong. Low multiple with high growth rates, a great combination.
Now at 15x earnings, still 20% discount to market. When a stock price rises, ideally you want the multiple to stay the same. It would mean organic growth matches price appreciation, both moving forward at the same time. With a dramatic move in price, ask yourself if you still want to hold?
Economically sensitive. Be careful. Don't want to own it into a recession. Deep recession would hurt. Market seems on solid economic ground, so he's holding. If it gets too big in the portfolio, he'll trim. Still likes it.
Look at the background. Companies like this live on government spending. US government's passing all kinds of bills to support the economy, like CHIPS and Infrastructure, to the tune of $2T. URI will get a big piece of this money.
A competitor reported softer results which took some of the wind out of the sails of the shares and in general, a lot of these more economically sensitive names have seen these larger drawdowns on no real news. Fear of higher rates is likely having an impact as investors become concerned on its impact on economic activity and homebuilding. At 14.4X forward earnings, we think URI looks fine here. We always like having 'more' information especially when earnings are so close so might wait for that even before adding but overall don't see much fundamentally that has changed here.
Unlock Premium - Try 5i Free
This is a play on the US economy. Companies do not like to buy heavy equipment, they like to rent it as it is much more efficient. When the economy gets better, the capacity tightens up and prices go up. They are now seeing rising prices for their rentals for the first time in a few years. When that begins, it tends to go on for a long time. It’s a cyclical business, but if we think companies are much more optimistic than they were 18 months ago, then they are going to start to build and are going to use equipment from this company. The company generates a lot of cash. (Analysts' price target is $194.87.)