NYSE: URI United Rentals, Inc Industrial - Rental & Leasing Services Recommendation: BUY By Jeremy Lu - Rental & Leasing Services Recommendation
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United Rentals, Inc
NYSE: URI
Industrial - Rental & Leasing Services
Recommendation: BUY
By Jeremy LuInvestment Thesis
▸ Recommendation
Slowing U.S industrial construction could temper near-term sales, yet United Rentals (NYSE: URI) could
outperform most peers as the leader in rental equipment, driven by double digit growth in specialty, cross-
selling initiatives, value-added in active M&A, current high margin and substantial potential for margin
expansion. We believe a BUY is the most fitted decision.
▸ Rationale
United Rental is the world’s largest industrial equipment rental company, with over a quarter of North
America’s market share. The company has consistently outperformed its peers and expectations, mainly due
to its high margin business and simple yet high return strategy. The stock market slightly undervalues United
Rental’s stock due to fears in the overall Industrial sector dimmish outlook.
1 Recent diversification to Specialty Rental segment
High margin General Rental segment paired with high growth high return Specialty
2 Rental
3 Bearish industrial machinery & rental industry outlook could affect growth
Price Target: $144.61 Current Price: $90.15 Upside Premium: 60.4%
2Company Overview
Company Facts Revenue Pie
▸ World’s largest equipment rental company, with 13% North General Rentals Specialty Rentals
American market share as of 2019.
▸ Operates through two segments: General Rentals & Specialty
Rentals
▸ Owns the largest rental fleet in the world with about 660,000
23%
rental units totaling $14.2Bn in original equipment cost.
▸ Vanguard, BlackRock, and State Street own a little over 25% of all
URI’s shares outstanding.
Key Ratios
77%
Revenue EBITDA MarketCap D/A Ratio P/E Ratio
$9.35Bn $4.4Bn $6.678Bn 64.3% 5.4
Management Team 5-Year Performance
$200.00
Matthew John Flannery(54) – President & CEO
$180.00
▸ Appointed as CEO in May 2019. Current Price: $90.15
$160.00
▸ Joined URI 1998 after acquisition, held EVP and $140.00
COO positions before elected as CEO.
$120.00
▸ Over two decades of sales, management and
$100.00
operations experience in the rental industry.
$80.00
Michael J. Kneeland(65) – Non-Executive Chairman $60.00
▸ Joined URI 1998, served as COO and Interim $40.00
CEO, and President & CEO from 2008 to 2018 $20.00
before retiring. $-
▸ 35 years of experience in the industry, held senior
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positions in Free State Industries and Equipment
Supply Company. URI Weekly Close
3Industry Analysis
Major Competitors Industry Yearly Revenue Change
Market Total 2024*
MarketCap 2019 Revenue
Share Locations
2023*
2022*
11.58Bn 9.4Bn 47% 1,197 2021*
2020*
2019
2018
16.13Bn 4.8Bn 35% 1,036 2017
2016
2015
2014
-5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0%
923.3MM 1.3Bn 7% 96
United Rental Industry
Market Share Industry Trends & Drivers
▸ U.S machinery companies have limited growth prospects in
2020 as several end-markets are at or near peak levels.
United Rentals 5%
6% ▸ Coronavirus, further trade war affects will contribute to
sluggish global economic growth in industrial end-markets.
Ashtead Group 7%
▸ Industrial Equipment Rental & Leasing industry revenue is
expected to grow at an average 2.3%, yearly compounded, in
H&E Equipment Services 47% the next 6 years.
▸ United Rentals’ size and market share, as well as it’s top-lined
Ritchie Bros Auctioneers EBITDA margin, is expected to continue to push the company
35% as a top performer in the industry.
Ramirent ▸ The largest players in the industry are expected to continue to
target explanatory acquisitions to gain a wider market
presence and grow above industry standards.
4Operating Segments
General Rental Specialty Rental
▸ This segment include the rental of construction, aerial, ▸ This segment include Power & HVAC, Trench Safety, Fluid
industrial, and homeowner equipment and related services and Solutions, ad Tool Solutions.
activities ▸ Represents 22.1% of overall company’s revenue in 2019, shows
▸ Represents 77.9% of overall company’s revenue in 2019, shows an increasing trend from 14.8% in 2016.
a declining trend from 85.2% in 2016. ▸ Has grown at a 33% annual rate vs. 7% for URI’s General
▸ General Rental segment has been the main cash generating Rental segment.
segment for United Rentals. However, the company looks to ▸ Specialty has gross margins 600-700 bps above General Rental,
diversify its revenue generation as it focuses its efforts on reduces exposure to more cyclical markets that URI is
Trench, Power, and Pump segment. traditionally in.
Ratio comp Segment as % of Total Rev
100.0%
General Rental T, P & P
90.0%
90.00%
83.70%
77.90% 80.0%
80.00%
70.0%
70.00%
60.0%
60.00%
50.0%
50.00% 45.40%
40.00%
38.80% 40.0%
33.00% 30.0%
30.00%
22.10% 20.0%
20.00% 16.30%
10.0%
10.00% 7.00%
0.0%
0.00% 2013 2014 2015 2016 2017 2018 2019
Revenue Gross Margin Annual Revenue CapEx
Growth General Rental Trench, Power, and Pump
5Diversification Initiative
Specialty Rental-oriented Acquisitions
[August 22, 2017]
United Rentals acquired all power generation assets, primarily
mobile generator sets, from Cummins Inc.
▸ Deals averaged 39.5% adjusted EBITDA margin vs
URI’s 48%.
[October 4, 2017]
▸ Significantly increased size and market share of its
United Rentals acquired the assets of Superior Speedie Portable Specialty Rental segment.
Services, Inc. and Superior Logistics Services, Inc., which
includes a fleet of over 8,000 portable toilets and over 130 ▸ More diversified customer mix to shield United
restroom trailers. This new specialty division is named United Rentals from next rental downturn and slowdown.
Rentals Reliable Onsite Services. ▸ Specialty rental business are high growth, high
return.
[July 2, 2018]
United Rentals purchased BakerCorp International for about ▸ Looking forward, United Rentals turn to lower
$715 million in cash, enhancing its Pump Solutions division. leverage target and focus on organic growth.
BakerCorp is a leading provider of tank, pump, filtration and ▸ Pause on M&A, turning to integration and reducing
trench shoring rentals, with about 950 employees, 46 locations leverage after concluding four large deals in two
in North America, and another 11 locations in Europe. years.
▸ Accelerating organic growth remains as a top
[September 11, 2018] priority.
United Rentals acquired BlueLine Rental from Platinum Equity ▸ Seeks to increase dominance in fragmented rental
for about $2.1 billion in cash. BlueLine is one of the top ten business – small and mid-sized rental companies
rental equipment companies in North America, with 114 account for 74% of the US rental industry
locations in 25 US states, Canada, and Puerto Rico, and
approximately 46,000 rental assets marketed primarily to mid-
sized and local accounts.
6Final Recommendation
Base Case
Price Target: $144.61
Current Price: $90.15
Upside Premium: 60.4%
Recommendation:
United Rentals will continue to outperform its peers as the leader in rental equipment by continuing its
diversification efforts and focusing on organic growth. We believe a BUY is the most fitted decision.
7Valuation (WACC)
8Valuation (DCF)
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