United Rentals Still Up for Grabs

I like firms showing big earnings and sales growth in recent quarters, and the message behind first-quarter earnings season so far is that bottom-line and top-line growth is alive and well on Wall Street. United Rentals (URI), with market capitalization of nearly $3 billion, provides construction and industrial equipment rentals in the U.S. and Canada. It's widely regarded as the leader in the group. When United Rentals reported earnings earlier this month, I knew it would take more than just good results to bring more buyers into the stock. After hitting a low of $12.81 in August, United shares soared 143% before breaking out of a huge base in January. The stock started to consolidate gains in March as investors awaited the company's first-quarter earnings report. Investors liked what they saw and sent shares higher by nearly 12% on April 18. Quarterly profit came in at $0.36 a share, reversing a year-earlier loss of $0.32 a share. The results were well above the Thomson Reuters consensus estimate of $0.05 a share. Sales rose 25% to $656 million. Adjusted earnings before interest, taxes, depreciation and amortization came in at $231 million, up 59% from a year earlier. EBITDA is an approximate measure of a firm's operating cash flow. During the call, CEO Michael Kneeland commented: We felt good about 2012 going into this year and we are just as bullish now and even more confident about our outlook. 2012 will continue to be a year of significant growth for us. Analysts seem to agree. Profit for all of 2012 is seen rising 76% to $3.29 a share. In 2013, annual earnings are expected to increase to $4.38 a share, 33% from the 2012 estimates. Mutual fund ownership is solid, but the United Rentals is nowhere near over-owned yet. Sometimes, fund ownership gets so large in a stock that the share price gets tougher to move. Fund managers can buy and sell easily without affecting share price much. This is not the case with United Rentals. At the end of the first quarter, 532 funds had a position in the stock, up from 469 at the end of the second quarter of 2011. Shares of United had another strong session Friday. Big buyers were in the stock again, sending shares higher by 4.1% to $46.79. Volume totaled 3.25 million shares, well above the stock's average daily volume of nearly 2 million shares. All this raises the question: Is United still buyable? When a stock breaks out of a base, as United did in January, investors who missed buying at the initial breakout get another opportunity. The stock is still within range after recently finding support at its 10-week moving average, but I wouldn't chase it above $47. I would also set a stop at around 10% below the purchase price. United Rentals (URI) -- Weekly Source: StockCharts.com View Chart » View in New Window » Finally, I would be remiss not to mention another strong performer in the group that could be on the verge of an upside breakout: H&E Equipment Services (HEES). It's a much smaller firm, with a market cap of nearly $700 million, but the company has an equally impressive track record of growth. H&E is set to report earnings Thursday before the open. The consensus estimate calls for profit of $0.04 a share (it lost $0.19 a share in the year-earlier quarter) with sales of $161.8 million, up 20% from a year earlier. Estimates have been moving higher. This year, full-year profit is expected to soar 200% from 2011 to $0.78 a share. In 2013, annual profit is seen rising 46% from those estimates to $1.14 a share. H&E could be poised to come out of a huge base that started about one year ago. With major averages showing renewed signs of strength, we can't rule out a heavy-volume break above the stock's recent high of $21, and that would make H&E a compelling buy. But whether the stock successfully breaks out will depend on the quality of its earnings report later this week. H&E Equipment Services (HEES) -- Weekly Source: StockCharts.com View Chart » View in New Window » Keep in mind that this is a sector that could see more consolidation ahead. Late last week, shareholders approved United Rental's acquisition of rival RSC Holdings (RRR) for $2.51 billion. A small company executing nicely, such as H&E Equipment Services, could likewise be a takeover target down the line. ________ Editor's Links More on value investing: Skechers May Be Turning a Corner Think Like the Father of Value Investing This Potash Weakness Is a Gift

United Rentals Still Up for Grabs

After the stock's January breakout and stellar recent earnings, shares are still within a buyable range.

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