Since 2013, one of my favorite investments in cyclical companies is United Rentals, Inc. (URI), the largest equipment rental company in North America with an integrated network of 890 rental locations in 49 States and all Canadian provinces.
Back in August 2014, I posted my initial heads up about this company on the Value Hounds discussion board that provided an overall description of corporate operations and financials.
Back then, the URI stock price realized a substantial annual increase of 112% from $56.50/share on 9/17/2013 to $119.68 on 9/19//2014. After a major pullback in FY2015 to $41.90/share on 2/11/2016, the stock price rocketed upward 162% to a recent 52-week high of $109.90 on 12/8/2016.
Here’s a Big Chart showing URI stock prices over the recent past 4 years.
Here’s a Big Chart, showing URI outperforming the S&P 500 over the recent past 4 years
Currently, the company has a $9.2 billion fleet comprised of about 450,000 units. It serves a diversified mix of customers, i.e., 50% Industrial/Non-Construction; 46% Non-Residential Construction; and 4% Residential; its top 10 customers accounted for only 6% of 2015 revenues. For more details, review the following:
Company and Industry Background
URI Investor Presentation: Fleet Management:
Regarding competition, URI operates in a highly fragmented equipment rental industry. Its competitors are (a) small, independent businesses with one or two rental locations, (b) regional businesses operating in more than one state; (c) public companies or divisions of public companies that operate nationally or worldwide; and (d) equipment vendors/dealers that sell and rent equipment directly to customers. By acquiring established companies, URI has well positioned itself as the largest company with more resources and competitive advantages over its smaller brethren. Currently, its primary competitors are privately held Sunbelt Rentals, the second largest equipment rental company in the U.S. with a smaller $5 billion fleet, and Herc Holdings Inc. (HRI). URI is #1 in the U.S. with 11% of the market share, followed by Sunbelt Rentals with 7% and HRI 5%.
United Rentals, Inc. (URI) is a mid-cap $8.9 billion company with an attractive 9.74 EV/EBITDA and acceptable 16.31 P/E ratio.
Market Cap $ 8.9 B Employees 12,700 52-week High 109.90 Price 12/16/16 105.71 52-week Low 41.90 EV/EBITDA (mrq) 9.74 P/E (ttm) 16.31 Fwd P/E 12.29 P/B (mrq) 5.82 P/S (ttm) 1.55
Revenue, Net Income & EPS
FY 2015 revenue, net income and EPS demonstrate that URI is a cyclical company.
REVENUE $ Billion YoY Change 2015 5.817 2.3% 2014 5.685 14.7% 2013 4.955 20.4% 2012 4.117 57.7% 2011 2.611 NET INCOME $ Billion YoY Change 2015 0.585 8.3% 2014 0.540 39.5% 2013 0.387 416.0% 2012 0.075 -25.7% 2011 0.101 EPS (diluted) $ YoY Change 2015 6.07 17.9% 2014 5.15 41.5% 2013 3.64 360.8% 2012 0.79 -42.8% 2011 1.38
Here’s more recent info: 3rd Quarter 2016 Financial Review Update:
In the following table, URI shows good growth in gross, operating and profit margins over the recent past 5 fiscal years.
MARGINS GROSS OPERATING PROFIT TTM 41.55% 24.47% 10.10% 2015 42.63% 26.10% 10.06% 2014 42.78% 24.47% 9.50% 2013 40.10% 21.76% 7.81% 2012 38.55% 14.36% 1.82% 2011 34.39% 15.17% 3.87%
ROIC and ROIC-WACC (EVA)
Although URI showed a positive 1.8 cents of pure economic value for every dollar invested in FY 2015, the company’s current EVA is in the red. For those who value this metric, I suggest reading URI CFO Bill Plummer’s thoughts and argument addressing this issue on pages 7-17 in the URI Investor Presentation: Financials dated 12/1/16 at the following website:
12/16/2016 ROIC 9.19% WACC 13.35% EVA -4.16% FY ROIC WACC EVA 2015 9.7% 7.9% 1.8% 2014 9.6% 10.8% -1.2% 2013 7.8% 13.5% -5.6% 2012 8.5% 16.2% -7.8% 2011 8.5% 12.9% -4.4%
URI continues to improve FCF with positive results for FY 2015 and continued strong growth toward its $1 billion plus target.
FCF TTM 723 M 2015 359 M 2014 ( 20 M) 2013 (133 M) 2012 (648 M)
Cash (mrq) $ 297.00 M Working Capital (mrq) ($ 66.00 M) Total Debt (mrq) $ 8.002 B Total Equity (mrq) $ 1.539 B Total Capitalization (mrq)$ 9.539 B Debt/Equity (mrq) 519.9% Debt/Capitalization (mrs) 83.8% Current Ratio (mrq) 0.95
Regarding URI’s negative working capital, high debt/equity, and high debt/capitalization, please review the URI Investor Presentation: Financials, dated 12/1/2016, at the following website that provides more details on the following; Debt Maturity Management; Interest Rate Management; Net Leverage Management; Share Repurchase Programs; Cost of Capital Management; ROIC and WACC; and Free Cash Flow.
Since 2010, the company has established, prioritized and continued a net leverage management policy that provides 2.5x to 3.5x target net leverage range in its capital allocation. The aforementioned presentation shows that the net leverage ratio is trending downward to the lower end 2.5x.
While United Rentals may not be the typical high growth revenue performer preferred by this board, the company has other favorable strengths, i.e., low EV/EBITDA, acceptable P/E, growing EPS, growing margins, and a strong FCF growth trend. Besides financials and IMO more importantly, URI is positioned well with a vast integrated network of rental locations in 49 States to greatly benefit if and when the new administration and U.S. Congress enact and implement a major infrastructure improvement program across the country.
As always, conduct your own due diligence and decision making, especially since URI is outside of this site’s portfolio and is a cyclical company that demands a high degree of investor vigilance.
More URI info: