United Rentals on a tear again

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.

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%


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:

ROIC	 9.19%		
WACC	13.35%		
EVA	-4.16%		
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.

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:


I bookmarked this because it is a thoughtful and thorough post and I thought it unjust that it went unreplied-to. However, I think the reason there’s not much interest is that it’s a slow (or no, or negative at times) growth company whose share price appears to have already recovered, and maybe even has some optimism baked in (Trump bump) about the infrastructure catalyst you mention. It’s a big question mark as to whether and how that will manifest, and therefore I’m staying away. Could be a great one if things play out well, and I wish you the best.