United Rentals last week issued 2008 preliminary guidance higher than Wall Street expectations, leading to an 11.3-percent rise to $18.45 in after-hours trading Thursday. Improved management of the rental fleet and cost savings may generate profit of $2.80 to $3 per share in 2008, the company said, even though it expects total 2008 revenue to drop to about $3.53 billion, compared with forecasted revenue of $3.73 billion for 2007.
The earnings outlook was the first released by United Rentals since it agreed July 23 to be acquired by Cerberus, which backed out of the deal Nov. 14, causing United Rentals’ stock to lose more than half its value. United said the cost-cutting and fleet management will help it compensate for expected “limited growth” in its main markets.
For 2007, United forecast earnings of $2.55 to $2.60 per share, not including the gain from the $100 million breakup fee Cerberus paid to cancel its acquisition. That projection is lower than a United Rentals forecast of $2.65 to $2.75 per share on $3.85 million in revenue issued by the company in May. Including the breakup fee, United forecasts earnings of $3.05 to $3.10 per share.
In a conference call, United Rentals highlighted its current operating strategy, including focusing on its core equipment rental business. United expects to have reduced headcount in 2007 by 1,100, which could have “significant impact” on 2008 results, the company said.
In 2008, United expects to increase its capital spending on aerial work platforms because of high customer demand, although it expects to lower its capital spending on earthmoving equipment. Management added that it believes its current debt to EBITDA ratio is “exceptionally low” and that the business could support higher leverage levels.
Analyst David Bleustein of UBS Investment Research said his company is maintaining its price target of $26 per share, and a “buy” rating. “Our ‘buy’ rating reflects the valuation opportunity afforded by the recent severe decline in URI’s stock price and the potential for shares to rise should URI once again explore strategic alternatives,” Bleustein wrote.
United Rentals’ stock price was $17.20 at the close of trading Friday.
Based in Greenwich, Conn., United Rentals is No. 1 on the RER 100.
