United Rentals, Inc. (URI) in Greenwich, Conn, is an equipment rental company. It recently announced a new agreement with Ford Pro to purchase all-electric vehicles for its North American rental and company fleets to help its rental customers meet their greenhouse gas reduction goals. It also lifted its 2022 outlook for total revenues, adjusted EBITDA, and free cash flow due to strong customer sentiment and solid project activity.

The stock has declined 12.4% in price over the past six months to close yesterday’s trading session at $312.68.

In addition, it is currently trading 24.7% below its 52-week high of $414.99, which it hit on November 8, 2021. Also, its trailing-12-month asset turnover ratio of 0.54% is 32.6% lower than the industry average of 0.80%. So, URI’s near-term prospects look uncertain.

Here is what could influence URI’s performance in the coming months:

Robust Financials

URI’s total revenue increased 22.7% year-over-year to $2.52 billion for its fiscal first quarter, ended March 31, 2022. The company’s adjusted EBITDA grew 30.5% year-over-year to $1.14 billion, while its net income surged 80.8% year-over-year to $367 million. Also, its EPS came in at $5.05, up 80.3% year-over-year.

Favorable Analyst Estimates

For the current quarter, ending June 30, 2022, analysts expect URI’s EPS and revenue to grow 38.4% and 19.7%, respectively, year-over-year to $6.45 and $2.70 billion. In addition, its EPS is expected to grow at 22.9% per annum over the next five years. Furthermore, Wall Street analysts expect the stock to hit $379.57 in the near term, indicating a potential 23.8% upside.

Stretched Valuation

In terms of forward EV/S, URI’s 2.85x is 73.1% higher than the 1.65x industry average. Likewise, its 2x forward P/S is 48.8% higher than the 1.34x industry average. Furthermore, the stock’s 3.16x forward P/B is 19.3% higher than the 2.65x industry average.

POWR Ratings Do not Indicate Enough Upside

URI has an overall C rating, which equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. URI has a D grade for Value, which is in sync with its higher-than-industry valuation ratios.

The stock has a C grade for Stability, which is consistent with its 1.80 beta.

URI is ranked #37 out of 86 stocks in the B-rated Industrial – Services industry. Click here to access all of URI’s ratings.

Bottom Line

URI could face headwinds in the near term due to concerns over high inflation and supply chain disruptions. So, the stock looks overvalued at the current price level, and it could be wise to wait for a better entry point in the stock.

How Does United Rentals (URI) Stack Up Against its Peers?

While URI has an overall POWR Rating of C, one might want to consider investing in the following Industrial – Services stocks with an A (Strong Buy) rating: Koç Holding A.S. (KHOLY), DLH Holdings Corp. (DLHC), and PT United Tractors Tbk (PUTKY).

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URI shares were trading at $307.57 per share on Wednesday afternoon, down $5.11 (-1.63%). Year-to-date, URI has declined -7.44%, versus a -12.41% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...

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