United Rentals May Have More Upside

United Rentals (URI), the largest equipment rental company in the world, has an integrated network of more than 550 rental locations in 48 states and Canada offering such items as forklifts, bulldozers, excavators, welders, and many others. Customers include construction and industrial companies, utilities, municipalities, and homeowners.

In their latest quarter (announced the day before yesterday), the company reported earnings of 0.36/share, $0.30 better than estimates; revenues rose 25% year/year to $656 million versus the $610 million consensus. During the earnings conference call, management was very bullish about the outlook for 2012, expecting significant synergies from their acquisition of RSC holdings — expected to close at the end of April. On valuation, the stock has a forward P/E of 11 on forecast earnings per share growth of 37%, resulting in a PEG of 0.3, a reasonable valuation.

Technically, the stock is breaking out of a flat base after a strong run in the second half of 2011.

While the overall stock market remains in a corrective phase, this stock offers a decent risk/reward with an entry in the 45 area and a stop-loss around 43 (the upper end of the eps-related up-gap in price on April 18, 2012). A way to play it would be to enter half a position now and then wait to see how it holds up versus the rest of the market.


About jstradingnotes

I spend a lot of time analyzing the economy and securities. The effort has enabled me to generate multi-thousand percent returns on my trading capital over the past twelve years. The next few years offer an incredible opportunity to take outsized gains from the markets. Large structural imbalances in the major western economies will result in enormous market volatility as the imbalances get resolved, offering generational money-making opportunities. The major imbalances are excessive sovereign debt, crazy risk concentration in major banks, and enormous derivative exposure in the financial sector. A systemic shock can easily create a default cascade through the financial system where one failure precipitates another and another and so on. Central banks are very aware of the risks, and they are filling the financial system with liquidity by printing new money, risking massive inflation in a few short years for the United States and Europe. China has 2-3 trillion in dollar exposure, and they would like to have far less for fear of continued currency devaluation (they've lost billions holding dollars as the value erodes). As the size of their holdings prevent them from rapidly liquidating their dollar assets (which includes U.S. treasuries), they are instead spending their dollars on resources (copper mines, rare earth metal mines, oil wells, etc.). Lately they have been accumulating gold assets, perhaps with a view to making the Renminbi convertible into gold and displacing the U.S. dollar as the international reserve currency. Their gold buying is enormous and presents an easy investment thesis: ride the Chinese horse and buy gold and gold stocks. In this blog, I'd like to share some of my trading ideas and insights on the markets as these exciting times unfold.
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