A Cheap Backdoor Play On Increasing Construction Activity

| About: United Rentals, (URI)

United Rentals (NYSE:URI) has had a nice run over the last two months as it reported earnings that crushed expectations on the bottom line and on the back of improving housing and construction markets. If the housing and commercial construction recovery is sustainable, this stock still has plenty of room to run given its cheap valuations and growth prospects.

5 possible catalysts for URI

  • The company's prospects are improving along with the construction segment as customers are choosing to rent rather than buy in case the economy falters again.
  • Utilization rates are consistently moving up. Utilization for July was 68.6% and of the first part of October it stands at 72%.
  • Consensus earnings estimates for both FY2012 and FY2013 have ticked up over the last month.
  • Oppenheimer came out this morning to reiterate its "outperform" rating and $55 price target on the stock.
  • Even Cramer is getting bullish on the stock as well given the company a positive shout out in today's "6 in 60"

United Rentals is an equipment rental company. It offers approximately 3,000 classes of equipment for rent to customers comprising construction and industrial companies, manufacturers, utilities, municipalities, homeowners, and government entities.

4 additional reasons URI offers solid upside at just over $39 a share:

  1. Earnings are climbing at a rapid clip. The company earned $1.87 a share in FY2011 and is on track to make over $3 a share in FY2012. Analysts' have consensus earnings of more than $4.60 currently for FY2013.
  2. The company has crushed earnings estimates each of the last five quarters. The average beat over consensus during that time span has averaged 28%.
  3. URI is selling at just over 8.5x forward earnings, a significant discount to its five year average (15.9).
  4. Analysts are expecting over 20% revenue growth in FY2013 and the stock sells for a five year projected PEG of under 1 (.93).

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in URI over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.