United Rentals Inc (URI, Financial) has recently experienced a daily gain of 3.07% and a 3-month gain of 45.21%. With an Earnings Per Share (EPS) (EPS) of 32.86, the question arises: Is the stock fairly valued? This article aims to provide a comprehensive analysis to answer this question. We invite you to delve into the following analysis to gain a deeper understanding of United Rentals' valuation.
A Glimpse into United Rentals Inc
United Rentals is recognized as the world's largest equipment rental company, commanding approximately 17% share in a highly fragmented market. Primarily operating in the United States and Canada, it caters to three end markets: general industrial, commercial construction, and residential construction. Since its public debut in 1997, United Rentals has grown organically and through numerous acquisitions, boasting a fleet size of $19.6 billion.
At a glance, the company's stock price stands at $491.17, while its GF Value, an estimation of fair value, is $463.11. This comparison sets the stage for an in-depth exploration of the company's value, seamlessly integrating essential company details with financial assessment.
Decoding the GF Value
The GF Value represents the current intrinsic value of a stock, derived from our unique method. The GF Value Line on our summary page provides an overview of the stock's fair value. This value is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) at which the stock has traded.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
The GF Value Line is considered the fair value at which the stock should be traded. If the stock price is significantly above the GF Value Line, it indicates an overvalued stock with potentially poor future returns. Conversely, if it is significantly below the GF Value Line, the stock may be undervalued and likely to offer higher future returns.
At its current price of $491.17 per share, United Rentals stock appears to be fairly valued. This suggests that the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength of United Rentals
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Hence, reviewing a company's financial strength is crucial before deciding to buy its stock. A great starting point is to look at the cash-to-debt ratio and interest coverage. United Rentals has a cash-to-debt ratio of 0.02, ranking lower than 95.97% of 1043 companies in the Business Services industry. Its overall financial strength is ranked 4 out of 10 by GuruFocus, indicating poor financial strength.
Profitability and Growth of United Rentals
Investing in profitable companies, particularly those demonstrating consistent long-term profitability, generally poses less risk. A company with high profit margins is typically a safer investment than one with low profit margins. United Rentals has been profitable for 10 out of the past 10 years. In the past twelve months, the company generated a revenue of $13.20 billion and an Earnings Per Share (EPS) of $32.86. Its operating margin is 27.51%, ranking better than 92.8% of 1041 companies in the Business Services industry. Overall, GuruFocus ranks United Rentals' profitability at 10 out of 10, indicating strong profitability.
Growth is a crucial factor in a company's valuation. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, it usually creates value for its shareholders, especially if the growth is profitable. Conversely, declining revenue and earnings can decrease the value of the company. United Rentals's 3-year average revenue growth rate is better than 69.83% of 981 companies in the Business Services industry. Its 3-year average EBITDA growth rate is 12.5%, ranking better than 55.32% of 846 companies in the Business Services industry.
ROIC Vs WACC
Another way to evaluate a company's profitability is by comparing its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, United Rentals's ROIC was 12.6, while its WACC came in at 11.41.
Conclusion
In summary, the stock of United Rentals (URI, Financial) shows every sign of being fairly valued. The company's financial condition is poor, but its profitability is strong. Its growth ranks better than 55.32% of 846 companies in the Business Services industry. To learn more about United Rentals stock, you can check out its 30-Year Financials here.
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