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Earnings Preview: Higher rental rates to give United Rentals a lift in Q3

United Rentals Inc. (URI) is scheduled to report third quarter 2018 earnings results on Wednesday, October 17. Analysts expect the company to report $2.02 billion in revenues, reflecting a year-over-year growth of 14.4%. Earnings for the quarter are expected to grow 42.2% to $4.62 per share.

In prior sequential quarter, United topped market expectations on revenues and profits. Revenues grew 18% to $1.89 billion while EPS jumped 62% to $3.85.

The results had benefited from higher rental equipment volume and rental rates, along with tax benefits. Double-digit increases in rental revenues fueled revenue growth.

This trend is likely to continue for the third quarter due to solid demand in the industrial and construction spaces. Rental rates have remained positive so far this year and are likely to maintain this momentum in the third quarter as well.

Over the past four quarters, United has missed estimates only once. So going by the company’s history, it has a good chance of beating expectations in Q3.

United Rentals posts upbeat Q2 results

At the end of July, United completed its acquisition of BakerCorp for around $715 million and updated its guidance to reflect the transaction. Total revenue is now expected to range between $7.6 billion and $7.8 billion while adjusted EBITDA is expected to range between $3.71 billion and $3.81 billion.

In September, United announced its plan to acquire equipment rental company BlueLine Rental for approx. $2.1 billion. The addition of BlueLine will provide United with significant benefits in terms of footprint, fleet and customer base. The acquisition, which is expected to close in the fourth quarter of 2018, is anticipated to be immediately accretive to United’s EPS and free cash flow.

United plans to update its full-year 2018 guidance once again after completing the BlueLine acquisition. Updates on both these acquisitions will be something to note during the third quarter earnings announcement.

United’s industry peers PulteGroup Inc. (PHM) and The Sherwin-Williams Company (SHW) are expected to report earnings results next week on October 23 and 25, respectively.

United’s shares are down 20% thus far this year and looking at the past three months, the stock is down 11%. If the third quarter results beat expectations, the stock is likely to get a lift. The general sentiment around the results appear to be positive.

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