United Rentals (URI: $32) this week was picked by Standard & Poor's Equity Research as its Focus Stock of the Week. URI carries S&P's highest investment recommendation of 5-STARS, or Strong Buy. Founded in 1997 by acquiring and consolidating six established companies, United Rentals has grown to become the largest equipment rental company in the world.
"As the U.S. economy continues to slowly recover, we expect nonresidential construction to start to gain steam, with major improvement likely to start to appear in the second half of 2011," said Jim Corridore, equity analyst at Standard & Poor's Equity Research. "After several rounds of restructurings and resizing of its rental fleet, URI is well positioned, in our view, to benefit from improving rental rates and rental utilization that we would expect to occur when nonresidential construction starts to see strong growth."
Corridore thinks this nonresidential construction recovery has already started, though he believes it is still in the early stages. In 2010, he said, URI experienced a modest recovery in its rental rates, utilization and used equipment rates, a positive sign after several years of these variables falling.
"This modest recovery strengthened somewhat in the second half of 2010, when URI saw a 12-percent increase in its utilization, which the company attributed to cyclical improvement in its operating environment," said Corridore.
"We expect this cyclical recovery to continue to build throughout 2011, and think that URI could be at the start of a multi-year recovery in equipment rental” he said. "We believe the time to invest in cyclical companies like URI is typically before earnings start to recover, and when it's clear that the economy has bottomed."
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