Durable Goods (Jun F) -9.4% vs 9.3% Prior, Ex-Trans 0.2% vs 0.2%
On Tuesday, Bernstein analysts led by Chad Dillard upgraded United Rentals , Inc. (NYSE:URI) stock rating from ’Underperform’ to ’Market Perform.’ Accompanying the rating change, the price target was revised downward to $666 from the previous $705. The adjustment followed a significant decline in the company’s share value, with a 30% drop from its peak price of $896.98. According to InvestingPro data, the company’s stock has shown considerable volatility with a beta of 1.77, while maintaining a substantial market capitalization of $42.26 billion.
The analysts acknowledged an error in their prior assessment, citing a failure to fully appreciate the impact of the Specialty Rental segment on the company’s growth and earnings. The segment has been identified as a key driver for United Rentals, contributing to its earnings and lessening the cyclical nature of its business. Over the past three years, Specialty Rental has expanded at twice the rate of the General Rental segment, with a 20% growth compared to 10%. It now accounts for two-thirds of the company’s 16% compound annual growth rate (CAGR) in revenue and has increased its share of profits to 40%, up from 25%. InvestingPro data shows the company’s strong financial performance, with an EBITDA of $4.57 billion and a current P/E ratio of 16.63x. For deeper insights into URI’s valuation metrics and growth potential, access the comprehensive Pro Research Report, available exclusively on InvestingPro.
United Rentals’ Specialty Rental segment is seen as a significant growth opportunity due to its current low market penetration of approximately 10%, compared to around 60% for General Rental. Analysts project that if Specialty Rental follows a similar growth trajectory as General Rental, it could achieve a 7% revenue CAGR. New store openings are a primary growth catalyst, with each new store contributing approximately $6 million. Combined with an expected 5% growth in the broader market, the Specialty segment is forecasted to grow at a 12% CAGR through approximately 2028, outpacing the General Rental’s projected 5% CAGR. Recent InvestingPro data reveals the company’s current revenue growth rate of 7.07%, demonstrating continued momentum in its expansion strategy.
The upgrade in rating and the revised price target reflect Bernstein’s reassessment of United Rentals’ market position, particularly in the Specialty Rental segment, which they now view as a central element for the company’s future growth. Based on InvestingPro’s Fair Value analysis, the stock is currently trading near its Fair Value, suggesting a balanced risk-reward proposition for investors.
In other recent news, United Rentals has announced the termination of its merger agreement with H&E Equipment Services, a decision mutually agreed upon by both parties. The termination will result in H&E paying United Rentals a termination fee of approximately $63.5 million, as outlined in their initial agreement. This decision coincides with United Rentals’ choice not to counter a superior bid from Herc Holdings (NYSE:HRI) for H&E, allowing Herc to proceed with its acquisition offer. Meanwhile, Raymond (NSE:RYMD) James has reaffirmed an Outperform rating for United Rentals, maintaining a price target of $925. The firm noted that United Rentals is expected to focus on disciplined capital allocation, with plans to resume its share buyback program, which includes a potential new $1.5 billion authorization. In another development, BofA Securities adjusted its price target for United Rentals to $750 from $850, citing a shift in valuation metrics due to changes in construction indicators. Despite this adjustment, the Buy rating was maintained, highlighting United Rentals’ strong financial position and market leadership. These recent developments reflect United Rentals’ strategic focus on capital management and market positioning.
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