Today, United Rentals Inc (URI, Financial) experienced a slight decline in its stock price by 3.4%, yet it has gained 8.04% over the past three months. With an Earnings Per Share (EPS) of 36.89, investors might wonder if the current stock price reflects the company's intrinsic value. Is United Rentals (URI) modestly overvalued? This article delves into the company's financials and market performance to provide a clear valuation analysis.
Company Overview
United Rentals is the world's largest equipment rental company, holding an approximate 17% market share in a highly fragmented industry within the United States and Canada. Since its IPO in 1997, United Rentals has expanded through numerous acquisitions, now offering a diverse fleet valued at $21 billion. The company primarily serves the general industrial, commercial construction, and residential construction sectors. With a current stock price of $688.14 and a GF Value of $533.48, an analysis of its valuation is pertinent.
Understanding GF Value
The GF Value is a proprietary measure indicating the intrinsic value of a stock, considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. For United Rentals, the GF Value suggests that the stock might be modestly overvalued, with the current price standing above the estimated fair value of $533.48. This discrepancy indicates potential lower future returns relative to the company's business growth.
Financial Strength and Risks
Investing in companies with robust financial health reduces the risk of significant capital loss. United Rentals has a cash-to-debt ratio of 0.03, which is lower than 94.91% of its peers in the Business Services industry. This could indicate a higher risk in terms of debt management. The company's financial strength, rated 5 out of 10 by GuruFocus, suggests it is fair but requires cautious assessment by potential investors.
Profitability and Growth Prospects
United Rentals has demonstrated strong profitability, with an operating margin of 27.3%, ranking better than 92.43% of its industry peers. The company's profitability score is a robust 10 out of 10. Additionally, its 3-year average revenue growth rate surpasses 81.55% of companies in the Business Services sector. Such metrics suggest that United Rentals is not only growing but also efficiently managing its profits.
Investment Considerations
When evaluating an investment, comparing the Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) provides insight into value creation. United Rentals' ROIC over the past 12 months stands at 12.5, slightly below its WACC of 12.71, indicating a potential concern in value creation relative to the capital cost.
Conclusion
In conclusion, while United Rentals (URI, Financial) showcases strong profitability and growth, its current market price slightly above its intrinsic value suggests it is modestly overvalued. Investors should consider this along with the company's financial strength and debt levels when making investment decisions. For a deeper dive into United Rentals' financials, visit United Rentals' 30-Year Financials.
To discover other high-quality companies that may offer above-average returns at reduced risk, check out the GuruFocus High Quality Low Capex Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
