Should You Follow Value Guru on United Rentals?

Equipment rental company United Rentals (NYSE: URI  ) has enjoyed some free press recently when it was presented as a bullish pick at the Value Investing Congress in New York City. The story is a simple and common one among turnaround players -- the economy is recovering, albeit slowly, and industrial and commercial equipment will experience increased demand.

What separates United from the competition, says Marcato Capital's Mick McGuire, is that United has a national footprint that surpasses its peers and earns higher fees, all while the stock trades at little to no premium.

Still under 10 times forward earnings, is United Rentals a quick and easy value play?

Easy is easy
Though they are some of the most skilled and analytical of investors, value gurus love a simple business that a monkey could understand. United Rentals is as simple as it gets: a pure play on North American construction. The company has 3,300 classes of rentals for commercial and industrial construction applications. With the still-low housing starts (historically) and increasing demand for both residential and commericial properties 

Last year, United Rentals bought rival RSC Holdings for $2.53 billion in cash and stock. The deal was proposed with $200 million in cost savings after all is said and done, and it gives United Rental a nearly unparalleled representation across the country. The company represents 15% of the highly fractured market.

Though the housing recovery is long past its contrarian-play days, there is still upside potential. For United Rental, sales last year finally topped their pre-financial crisis highs with the help of RSC.

McGuire, whose firm has amassed a near-5% stake in the company, said the RSC acquisition has given United Rental access to a higher quality customer -- one who pays more, rents more often, and returns the equipment in better condition.

Good indicators and strong potential
With the RSC acquisition is still fresh, the full earnings potential of the newly combined entity has not yet been realized, nor has the market reflected its additional value. Competitor Hertz Global Holdings trades at 10.5 times forward earnings and holds a price to book of 4.82 times. Of course, Hertz also is a major player in the automobile rental market. Smaller player McGrath RentCorp trades at more than 18 times forward earnings and has a price to book of 2.4 times.

United Rental's P/B is 3.34 times.

Investors compelled by the story of a construction rebound should certainly take note of this recent Value Investing Congress pick. Keep in mind, a company such as this is particularly susceptible to economic shifts. If things slow down, so will the stock. But if McGuire is right, there is plenty of upside yet to be had for ambitious value pickers.

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