United Rentals (URI)

Equipment rental company United Rentals (NYSE:URI) reported Q1 CY2025 results topping the market’s revenue expectations, with sales up 6.7% year on year to $3.72 billion. The company expects the full year’s revenue to be around $15.85 billion, close to analysts’ estimates. Its non-GAAP profit of $8.86 per share was 0.5% above analysts’ consensus estimates.

Company Overview

Owning the largest rental fleet in the world, United Rentals (NYSE:URI) provides equipment rental and related services to construction, industrial, and infrastructure industries.

Historically, specialty equipment distributors have boasted deep selection and expertise in sometimes narrow areas like single-use packaging or unique lighting equipment. Additionally, the industry has evolved to include more automated industrial equipment and machinery over the last decade, driving efficiencies and enabling valuable data collection. Specialty equipment distributors whose offerings keep up with these trends can take share in a still-fragmented market, but like the broader industrials sector, this space is at the whim of economic cycles that impact the capital spending and manufacturing propelling industry volumes.

Competitors in the equipment rental industry include Sunbelt Rentals (LSE:AHT), Herc Holdings (NYSE:HRI), and H&E Equipment Services (NASDAQ:HEES).

Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, United Rentals’s sales grew at an impressive 10.7% compounded annual growth rate over the last five years. Its growth surpassed the average industrials company and shows its offerings resonate with customers, a great starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. United Rentals’s annualized revenue growth of 12.1% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

This quarter, United Rentals reported year-on-year revenue growth of 6.7%, and its $3.72 billion of revenue exceeded Wall Street’s estimates by 2.5%.

Looking ahead, sell-side analysts expect revenue to grow 3.3% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and suggests its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.

All else equal, we prefer higher gross margins because they make it easier to generate more operating profits and indicate that a company commands pricing power by offering more differentiated products.

United Rentals’s unit economics are great compared to the broader industrials sector and signal that it enjoys product differentiation through quality or brand. As you can see below, it averaged an excellent 40.7% gross margin over the last five years. That means United Rentals only paid its suppliers $59.29 for every $100 in revenue.

This quarter, United Rentals’s gross profit margin was 36.5%, marking a 2.6 percentage point decrease from 39.1% in the same quarter last year. United Rentals’s full-year margin has also been trending down over the past 12 months, decreasing by 1.5 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

United Rentals has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 25.6%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, United Rentals’s operating margin rose by 4.3 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q1, United Rentals generated an operating profit margin of 21.6%, down 2.8 percentage points year on year. Since United Rentals’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

United Rentals’s EPS grew at a spectacular 16.9% compounded annual growth rate over the last five years, higher than its 10.7% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into United Rentals’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, United Rentals’s operating margin declined this quarter but expanded by 4.3 percentage points over the last five years. Its share count also shrank by 11.9%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For United Rentals, its two-year annual EPS growth of 11.1% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q1, United Rentals reported EPS at $8.86, down from $9.15 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects United Rentals’s full-year EPS of $42.95 to grow 4%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

United Rentals has shown terrific cash profitability, putting it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the industrials sector, averaging 17.2% over the last five years.

Taking a step back, we can see that United Rentals’s margin dropped by 15.8 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

United Rentals’s free cash flow clocked in at $1.08 billion in Q1, equivalent to a 29.1% margin. This result was good as its margin was 4.5 percentage points higher than in the same quarter last year. Its cash profitability was also above its five-year level, and we hope the company can build on this trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

United Rentals’s five-year average ROIC was 14%, higher than most industrials businesses. This illustrates its management team’s ability to invest in profitable growth opportunities and generate value for shareholders.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, United Rentals’s ROIC increased by 2.9 percentage points annually over the last few years. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.

United Rentals reported $542 million of cash and $13.99 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $7.24 billion of EBITDA over the last 12 months, we view United Rentals’s 1.9× net-debt-to-EBITDA ratio as safe. We also see its $347 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing United Rentals beat analysts’ revenue, EPS, and EBITDA expectations this quarter. Overall, this quarter had some key positives. The stock traded up 2% to $600 immediately following the results.

Updated: May 21, 2025 at 10:57 PM EDT

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

There are definitely a lot of things to like about United Rentals. To kick things off, its revenue growth was impressive over the last five years. And while its cash profitability fell over the last five years, its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits. On top of that, its impressive operating margins show it has a highly efficient business model.

United Rentals’s P/E ratio based on the next 12 months is 15.6x. When scanning the industrials space, United Rentals trades at a fair valuation. If you’re a fan of the business and management team, now is a good time to scoop up some shares.

Wall Street analysts have a consensus one-year price target of $758.37 on the company (compared to the current share price of $701.76), implying they see 8.1% upside in buying United Rentals in the short term.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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