Join        Login             Stock Quote

United Rentals: Story Remains Strong

 January 09, 2013 02:24 PM

(By Mani) United Rentals, Inc. (NYSE: URI) stock remains strong heading into 2013, driven by fundamentals that boast a flexible balance sheet, steady cash flow and solid pricing trends.

The equipment rental company is benefiting from industry trend that customers increasingly opting to "rent vs. buy" equipment, and it is capturing share relative to smaller competitors in an expanding industry.

United Rentals, which rents over 20,000 classes of equipment, recently highlighted that 2013-2015 should deliver about $2 billion of free cash flow (FCF), well in excess of what's needed to maintain debt/EBITDA at the low end of its target zone of 2.5x-3.5x.

[Related -A Rare 3-Day Losing Streak?]

The company cited its primary use of free cash flow in the near term will be to pay down debt and reduce leverage to 3x debt to EBITDA by the end of 2013. Longer-term, it will review ways of returning cash to shareholders.

"URI's clear comfort with this long-term "anticipation," and logical metric bridge to it enhanced the attractiveness of the story," Oppenheimer analyst Scott Schneeberger said in a client note.

United Rentals reiterated free cash flow guidance for 2013 in the range of $400-$500 million, consistent with its internal free cash flow projections per the S-4 plus estimated synergies for 2013.

As the company reduces debt/EBITDA to ~3x, it expects to generate excess free cash flow over coming years that should position it well for further M&A activity and incremental share buybacks.

[Related -Fear Rising In Aftermath Of Boston]

"We anticipate URI's strong free cash flow generation, focus on debt reduction, and increasingly powerful balance sheet (with flexibility beyond debt reduction once it reaches ~3x debt/EBITDA) will make it more attractive to a long-term investors, potentially prompting the holder base to become more "owners" vs. "renters," the analyst said.

Meanwhile, the 2013 rental rate growth is anticipated to be "down a little bit" from the guided 7 percent in 2012, and seemingly conservative 2-3 percent rental rate growth was anticipated in 2014 and beyond. This is consistent with what the company considers a more sustainable long-term growth rate.

"We view these rental rate growth assumptions to be attainable considering persisting favorable secular (and potentially cyclical) drivers, efficient fleet management (utilization), superior customer service levels," Schneeberger noted.

The rental rates are expected to exceed the 2007 peak levels given the company's historically improved service and value proposition to customers.

In addition, United Rentals bridged its current return on invested capital (ROIC) of 7.4 percent to its future target of 10.1 percent, suggesting that it acknowledges investor attention to ROIC generated in the equipment rental industry not being in excess of the cost of capital

It expects to improve its ROIC by 2.7 percent over the next 2-3 years. Importantly, a core fundamental/financial goal of the company is for it to return its cost of capital over a cycle.

"This (ROIC) clearly coincides with investor desire as well," Schneeberger added.

Further, the company has several key operational strengths versus peers including leadership; broad scope of services and geographical footprint, which is unmatched in the industry. Also, the company's robust safety culture and its ability to help customers create efficiency and save costs are driving credibility/loyalty.



Post Comment -- Login is required to post message
Alert for new comments:
Your email:
Your Website:

rss feed

Latest Stories

article imageWorld Growth: Mediocre or Pathetic?

The recent disappointing performance of the world economy has been labelled as the "new mediocre" by read on...

article imageSurvey Data For US Services Sector Hint At Mild Q2 Rebound

Yesterday’s discouraging numbers on job growth in April via the ADP Employment Report raise doubts about a read on...

article imageADP: US Job Growth Stumbled In April

Employment growth at US companies slowed in April to the weakest gain in three years, according to this read on...

article imageBogle Says Indexing Destined To Win The Battle Of The Quants

Vanguard founder John Bogle gave a powerful speech last month at the Q Group’s Spring Seminar that lays out read on...

Popular Articles

Daily Sector Scan
Partner Center

Related Articles:

Top 15 Stocks to Gain from Obama Victory
More Articles on: Construction

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.