A Banc of America Securities analyst initiated coverage of United Rentals Inc. with a “Neutral” rating, saying there are few catalysts driving upside in the non-residential construction cycle, according to an AP report.
Analyst Seth Weber set a price target of $29 for United Rentals, along with earnings per share estimates of $2.29 in 2006 and $2.65 in 2007. On average, analysts polled by Thomson Financial expect a 2006 profit of $2.27 per share and 2007 earnings of $2.72.
Weber said he has a positive view of United Rentals’ improving financial metrics and market leadership in the North American machinery and equipment rental sector, but those expectations are offset by challenges, including decelerating rental rate increases, lower used equipment sales and some exposure to residential construction.
In a note to clients, Weber said that demand for United Rentals’ rental products and services is closely tied to non-residential construction spending, which he believes is poised to remain healthy in 2007, supported by low inflation and high corporate profits.
Weber said his surveys of non-residential construction contractors suggest they are increasingly reliant on the rental channel, with 31 percent of 177 respondents in October indicating plans to use the rental channel more. Only 8 percent said they would rent less often.
According to Weber, continued evidence of improving financials should help improve investor sentiment, which was dampened by a 2004 SEC investigation and accounting issues.
United Rental shares closed Friday at $26.35 on the New York Stock Exchange.
Greenwich, Conn.-based United Rentals is No. 1 on the RER 100.