Sunday, May 26, 2024

S&P 500 Heavyweight, IBD Stock of the Day, Inching Closer to Buy Point After $1 Billion Deal

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In the ever-evolving landscape of the equipment rental industry, United Rentals (URI) has flexed its financial prowess with the acquisition of Yak Access for a staggering $1.1 billion. This strategic move positions the S&P 500 giant closer to a coveted buy point, signaling potential growth opportunities on the horizon.

The Yak Access Acquisition: A Calculated Expansion

United Rentals, a behemoth in the equipment rental sphere, has demonstrated its commitment to strategic growth by acquiring Yak Access from Platinum Equity. This acquisition, finalized on March 15th, bolsters United Rentals’ presence in the utility and midstream verticals while solidifying its leadership in commercial mats for surface protection across construction, maintenance, repair, and operations applications.

Yak Access, a formidable player in its own right, generated an impressive $171 million in adjusted EBITDA on $353 million in revenue in 2023. This acquisition marks United Rentals’ second venture with Platinum Equity, having previously acquired Blueline Rentals in 2018 for a staggering $2.1 billion.

Capitalizing on Infrastructure Investments

The timing of this acquisition couldn’t be more opportune. With the $1.2 trillion infrastructure spending bill passed in November 2021, United Rentals is poised to reap the benefits of a surge in public roadworks and infrastructure investments across the United States. The company has repeatedly emphasized its belief in capturing “multiyear tailwinds” from infrastructure, manufacturing, and energy investments within the country.

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Moreover, United Rentals’ 2023 equipment sales received a substantial boost from its acquisition of Ahern Rentals, the eighth-largest equipment rental company in North America. This merger, finalized at the end of 2022, further solidified United Rentals’ position as a dominant force in the industry.

Financial Performance and Guidance

United Rentals’ financial prowess is evident in its recent performance and guidance. The company is expected to report its first-quarter earnings and revenue later in April, with analysts anticipating a 5% growth in both sales and earnings per share (EPS). This projection comes on the heels of United Rentals averaging more than 22% earnings growth over the past three quarters.

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At the end of January, United Rentals issued its 2024 guidance, projecting adjusted EBITDA in the range of $6.9-$7.15 billion and revenue between $14.65-$15.15 billion. These ambitious targets reflect the company’s confidence in its ability to capitalize on the opportunities presented by the burgeoning infrastructure and construction sectors.

Nearing a Buy Point: A Promising Outlook

As United Rentals continues its upward trajectory, the stock is inching closer to a coveted buy point. According to MarketSmith analysis, the stock has formed a flat base with an official buy point of $732.37. Aggressive investors could consider using the stock’s high of $717.50 on April 4 as an early entry for this S&P 500 powerhouse.

The stock’s impressive performance is further bolstered by its Composite Rating of 97 out of 99, a Relative Strength Rating of 94, and an EPS Rating of 95 out of 99. These robust metrics underscore United Rentals’ position as a leader in its industry and a potential investment opportunity for those seeking exposure to the burgeoning infrastructure and construction sectors.

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Analyst Confidence and Industry Outlook

Analysts have taken note of United Rentals’ potential, with Truist analyst Jamie Cook initiating coverage of the stock with a buy rating and a price target of $793. Cook highlighted the above-average demand for construction equipment, reflecting positives for the sector associated with U.S. investment in infrastructure. Furthermore, the analyst emphasized the growing and more consistent story of cash returns to shareholders for United Rentals.

The Commercial Services-Leasing industry group, of which United Rentals is a part, has collectively risen by 12.7% in 2024, underscoring the industry’s resilience and growth potential.

As United Rentals continues to flex its financial muscle and capitalize on strategic acquisitions, the equipment rental giant appears poised to outperform its peers and deliver value to its shareholders. With a focus on infrastructure investments, a diversified portfolio, and a strong financial foundation, United Rentals stands as a formidable force in the industry, ready to seize opportunities and drive growth in the years to come.

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Mezhar Alee
Mezhar Alee
Mezhar Alee is a prolific author who provides commentary and analysis on business, finance, politics, sports, and current events on his website Opportuneist. With over a decade of experience in journalism and blogging, Mezhar aims to deliver well-researched insights and thought-provoking perspectives on important local and global issues in society.

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