Summary
I previously indicated that United Rentals offered an attractive upside for investors in the long run.
The company has risen since, but shares have definitely disappointed compared to the broader market.
Financial performance recently has been robust and shares of the business are still very cheap.
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cagkansayin/iStock via Getty Images One fairly small but booming industry for investors to consider buying into is the equipment rental space. Whether it be individuals doing home improvement projects or small companies that need sizable pieces of equipment, the rental market provides the opportunity to get the product you need without having to acquire it entirely. This ultimately lowers costs while providing an investment prospect for investors who want to buy into the companies that benefit from leasing out this equipment. One undervalued prospect in this market for investors to consider at this time is United Rentals ( URI ). At present, shares of the business looked to be trading on the cheap. And although the company did experience some pain from the COVID-19 pandemic, this year it is making up for that. An improved picture goes unrewarded
The last time I wrote about United Rentals was in an article published in March of this year. In that article, I called the company a solid long-term play for investors to consider. And I ultimately rated it a bullish prospect. Since then, shares have been something of a disappointment. Although they have generated a return, amounting to 4.6%, this return pales in comparison to the 15.9% upside achieved by the S&P 500 over the same period of time.
After first seeing this kind of disparity in returns, one might think that financial performance for United Rentals has disappointed. But in my mind, that is far from being the case. Between 2016 and 2019, revenue the company continued to expand, climbing from $5.76 billion to $9.35 billion. Then, in 2020, sales dropped to $8.53 billion as a result of the COVID-19 pandemic. So far this year, however, things have started to look a lot better. In the first nine months of the company’s 2021 fiscal year, revenue came in at $6.94 billion. That represents an increase of 11% over the $6.25 billion generated the same time one year earlier. For the current fiscal year, management now expects revenue to total between $9.60 billion and $9.75 billion. This compares favorably to the $9.6 billion midpoint figure previously anticipated by management. And it would represent an increase of 3.5% over 2019’s results.
One thing that is important to note is that while the company has benefited from organic growth, it has not been afraid to acquire other properties. For instance, in May of this year, management announced the acquisition of General Finance, a mobile storage and modular space business. That particular purchase brought with it 100,000 units and cost the company $1.03 billion. In addition to this, earlier this year, the company announced the intention to expand its product offerings in Europe. This expansion includes electric submersible pumps and other types of diesel and electric centrifugal pumps that the company is adding to its product inventory. *Created by Author
With revenue rising, profitability is following the same path. Net income so far this year has totaled $905 million. That is significantly higher than the $593 million generated in the same three quarters of the company’s 2020 fiscal year and equates to an annualized growth rate of 52.6%. Operating cash flow has risen from $2.29 billion to $3.02 billion, working out to year over year growth rate of 32%. And EBITDA is also on the rise, climbing slightly from $2.90 billion to almost $3.11 billion. This implies an annualized growth rate of 7.3%.
Just as management provided guidance for the company’s 2021 fiscal year when it comes to revenue, so too has management provided guidance on some measures of profitability. At present, the company now expects the firm to generate EBITDA of between $4.325 billion and $4.40 billion. At the midpoint, this comes in at just over $4.36 billion. That compares favorably to the $4.30 billion previously anticipated. Another profitability metric management provided guidance on was operating cash flow. This should now come in at between $3.375 billion and $3.725 billion. That works out to a midpoint of $3.55 billion, $100 million more than what prior forecasts called for. Shares are cheap today
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