United Rentals, Inc. (URI) is the country’s largest renter of specialty industrial equipment, with 17% share of this $68 billion annual revenue market, points out growth stock specialist Adam Johnson, editor of Bullseye Brief.
The company's well-maintained fleet of over 1 million rental machines at nearly 1,500 locations across North America provides unparalleled opportunity to serve clients in nearly every industry, from construction and infrastructure to energy and manufacturing.
United Rentals has beaten estimates and raised guidance in each of its most recent quarterly reports. Strong cash flow is enabling stock buybacks and debt reduction.
Shares currently trade at 15 times estimates, consistent with historic valuation, but I think consensus estimates underestimates growth (6% this year versus 25% in 2023). I see $100 of upside from current prices, possibly more in my bull case scenario.
By contrast, Wall Street’s 22 sell-side analysts are stuck at $650, having raised their collective target from $500 several months ago. I’m getting ahead of the pack with today’s note.
To appreciate United Rentals’ growth trajectory, we need to recognize what’s happening across nearly every facet of the economy: We’re becoming a nation of renters. What was once considered a capital asset is now a temporary service, from cars and vacation homes to heavy equipment and entire factories (think contract manufacturing for fabless semiconductor companies).
As our economy increasingly pivots to this asset-light model, where people and companies lease only what they need exactly when they want it — rather than buying and holding assets over entire life cycles — United Rentals increasingly becomes an enabler of economic growth, and a barometer of overall health. That’s why successive rounds of upward guidance are indicative of what’s happening in a larger sense.
I am raising price target on the stock to $800 per share; as the economy pivots from recession angst to sustained growth and rate cuts, I think this best-in-breed company will lead the market higher.
I arrive at my target by modeling 15% earnings growth this year and next, then applying the company’s 10-year average P/E multiple of 15x. This is quite achievable and arguably conservative. In a bull case, where earnings grow 15% — supported by lower interest rates and economic expansion — I could justify higher.
