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United Rentals (URI) to Post Q3 Earnings: What's in Store?

Zacks Equity Research

United Rentals, Inc. URI is scheduled to report third-quarter 2019 results on Oct 16, after market close.

The company surpassed the Zacks Consensus Estimate by 5.8% in the last reported quarter. In fact, United Rentals has a strong earnings and revenue surprise history. The company’s earnings surpassed expectations in 13 of the last 14 quarters, while revenues topped estimates in 12 of the trailing 14 quarters.

Its second-quarter revenues and earnings grew 23.1% and 21.1% year over year, respectively. The upside can be attributed to growth in construction end markets served by the company, and solid impact of BakerCorp and BlueLine acquisitions.

How are Estimates Faring?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release.

The Zacks Consensus Estimate for the quarter to be reported has declined from $5.74 to $5.67 in the past seven days. Nonetheless, this indicates an increase of 19.6% from the year-ago earnings of $4.74 per share. Revenues are expected to be $2.46 billion, suggesting 26.3% year-over-year increase.

Let’s see how things are shaping up for this announcement.

United Rentals, Inc. Price and EPS Surprise

United Rentals, Inc. Price and EPS Surprise

United Rentals, Inc. price-eps-surprise | United Rentals, Inc. Quote

Key Factors

Broad-based growth across geographic markets and vertical end markets served by the company (non-residential/infrastructure/residential) is expected to have boosted its revenues as well as earnings in the third quarter. Overall construction market scenario remained positive through first-half 2019 and the company is upbeat about the second half of 2019 as well, given improved demand in construction end-markets served. Infrastructure, especially transportation and power, is expected to have been a major tailwind during the quarter.

Buoyed by the above-mentioned tailwinds, Equipment Rentals — accounting for nearly 85.6% of its total revenues — is expected to have generated higher revenues in the third quarter. The Zacks Consensus Estimate for Equipment Rentals revenues of $2,140 million indicates an increase of 15% from $1,861 million a year ago and 9.2% from $1,960 million in second-quarter 2019. Other notable factors include:

Higher-Margin Specialty Business to Aid Margins:  During the quarter, United Rentals is expected to have benefitted from increasing mix of Specialty (which includes fluid solutions, power & HVAC, trench safety and tool solutions) in the portfolio. The Specialty business carries higher return metrics with a less cyclical profile, partly due to solutions-based selling approach. Over the past five years, Specialty has experienced an upward momentum, from less than 7% to more than 20% of its pro-forma revenues.

Solid Inorganic Strategy to Aid Top-Line Growth: United Rentals follows a systematic inorganic strategy to expand its geographic borders and product portfolio. Notable acquisitions, namely WesternOne Rentals & Sales LP, BlueLine and BakerCorp are expected to have contributed to top-line growth in the third quarter.

What the Zacks Model Unveils

Our proven model does not suggest that United Rentals is likely to beat estimates this earnings season. This is because it has the right combination of a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

Earnings ESP: United Rentals has an Earnings ESP of -2.68%. This is because the Most Accurate Estimate of $5.52 per share is pegged lower than the Zacks Consensus Estimate of $5.67. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: United Rentals carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s negative ESP makes surprise prediction difficult.

Conversely, Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Worth a Look

Here are some companies in the Zacks Construction sector, which according to our model have the right combination of elements to post an earnings beat in their respective quarters to be reported.

Masco Corporation MAS has an Earnings ESP of +0.53% and a Zacks Rank #3.

Floor & Decor Holdings, Inc. FND has an Earnings ESP of +0.78% and holds a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Jacobs Engineering Group Inc. JEC has an Earnings ESP of +1.14% and carries a Zacks Rank #2.

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