You may not know of United Rentals (NYSE: URI), the world’s biggest equipment rental company. It receives little attention in major financial media.
But its stock has outperformed technology icons Alphabet, Amazon, Apple, Meta Platforms and Microsoft over the past 10 years. In fact, it was the 18th best performer in the S&P 500 over that period, offering an annualized total return of 31%. That doubled the S&P 500 return of 15%.
United Rentals, which has a market-cap of $62 billion, began in 1997, and operates mainly in the U.S. and Canada. It has grown mostly through hundreds of acquisitions and now has a 16% share of a fragmented North American market.
The company principally serves the industrial and construction markets. Its equipment includes aerial platforms, forklifts, excavators, trucks and power generators. United is trying to create a one-stop shop for customers, given its wide array of products.
‘Economies of scale and scope’
“United Rentals has increasingly integrated its [almost 1,600 North American] locations, improved operations, and realized cost advantages via economies of scale and scope,” wrote Morningstar analyst George Maglares. This has pushed its revenue to a 10% compound annual growth rate since 2012. That’s triple the entire industry’s growth rate.
As the company has expanded, its acquisition focus has turned to specialty equipment rentals and services. That includes power and HVAC (heating, ventilation and air conditioning), fluid solutions, ground protection mats, tool services and trench safety.
United may be able to charge more money for these products, lifting its profit margins, Maglares notes. Examples include portable storage and bathroom facilities for construction sites and mobile power equipment at companies’ plants.
Being the biggest in its industry helps make United the best, analysts say. Its fleet size and branch network are orders of magnitude larger than its competitors.
Best-in-class technology
“Its leadership position has allowed United Rentals to invest in best-in-class technology, such as apps, to more quickly and efficiently mobilize its inventory to customers,” Maglares said. “This strengthens customer relationships and allows for better returns and differentiation versus competitors.”
The company can offer customers more products with greater efficiency, such as lower transportation costs and less need for United to sub-lease products to its customers.
United can keep growing “because ample opportunities exist to further consolidate the market and also to take share from customers that would otherwise own their own equipment but prefer” rentals, he said. U.S. infrastructure spending is on the rise overall.
United’s adjusted EBITDA hit a record $1.8 billion in the second quarter, and the company recently raised its estimates for revenue and cash flow for the year as a whole.
To be sure, United could face problems if the economy weakens. That would likely put a damper on the housing and industrial sectors, limiting demand for equipment rentals. But for now, the company’s outlook appears bright.
Comments