United Rentals, Inc. Looks Great in the Long Run

Equipment rental company United Rentals (NYSE: URI  ) has the wind in its sails. As an industry behemoth, the company has been in prime position to benefit from a global economic recovery, and recent earnings show further proof that that is well under way. United Rentals is seeing growth not only in its rental segments but in outright sales as well, suggesting that construction companies and industrials are investing in what should remain an upward-trending macroeconomic environment. While highly susceptible to shifts in said environment, United is looking great today as a globally oriented cash-printing business.

Earnings recap
Last week, the market rallied as United Rentals delivered better than expected numbers across the board. Adjusted earnings grew a massive 25% on the back of $1.39 billion in revenue -- itself a 7% gain over the prior year's number. As mentioned above, driving the numbers was a healthy mix of rental sales and new equipment sales -- up 9.4% and 3%, respectively.

Gross margins improved while SG&A costs went down. Adjusted EBITDA grew 18% $651 million.

For the full year, sales leapt up 20% to $4.9 billion.

The most attractive element for United Rentals is its cash generation. Despite a substantial increase in the size of its fleet ($7.73 billion worth of equipment, up from $7.2 billion), the company posted positive free cash flow of $383 million for the year.

Looking ahead, management expects $5.25 billion-$5.45 billion in fiscal 2014 revenue, with adjusted EBITDA in the neighborhood of $2.45 billion-$2.55 billion.

Digesting the numbers
United Rentals gives investors much to think about. For one, it's not only the leader in its industry; it is ahead of competitors by a huge margin. The company's fleet is approaching half a million units. As mentioned in a recent interview with Morgan Stanley wealth management executive Marshall Kaplan, that's three times the size of the nearest competitor.

In what used to be a highly fractured market, this degree of industry dominance is a substantial competitive moat.

Another thing to focus on is valuation. For a company trading at under 11 times forward earnings (as comparison, the more diversified but less focused Hertz Global trades at 12.5 times forward earnings), United Rentals is a healthy-growing company with strong cash generation. Though 2013's free cash flow would indicate a relatively rich valuation when compared to its enterprise value, investors should keep in mind that United spent half a billion dollars on new equipment. These investments will without doubt add incremental cash flow to the company's financial statements.

In October, the company announced a $500 million share repurchase -- nearly 7% of its current market value. The stock does not pay a dividend, but investors shouldn't want one as the continued investment in new equipment further solidifies the company's market-leading position and long-term value proposition. United has also been making bolt-on acquisitions that have quickly broadened the range of product offerings.

All in all, United Rentals is looking good today as long-term play on a global economic rebound.

More from The Motley Fool 
As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal "The Motley Fool's 3 Stocks to Own Forever." These picks are free today! Just click here now to uncover the three companies we love. 


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2810703, ~/Articles/ArticleHandler.aspx, 12/23/2014 12:15:04 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement