UBS Downgrades United Rentals On Slowing Business Momentum

There is increasing evidence of a downward momentum in United Rentals, Inc’s URI underlying markets and indicators point to a negative inflection in EBITDA, according to UBS.

The Analyst

UBS analyst Steven Fisher downgraded United Rentals from Buy to Neutral, reducing the price target from $166 to $118.

The Thesis

Major aerial original equipment manufacturers (OEM) that are suppliers for United Rentals and channel checks in the broader rental space have indicated to expectations of declining demand in 2020, Fisher said in the downgrade note.

Last week, aerial OEM Linamar preannounced its third-quarter results and cited between 15 to 20% reductions in capital expenditure from key construction equipment rental customers and “significant deterioration” from the expectations provided during the second-quarter earnings call, Fisher mentioned.

He added that a recent meeting with a regional rental company had indicated “rate pressure from CAT rental ops and a competitive response cutting rates.”

There has also been continued slowdown in non-residential construction spending growth and leading indicators suggest 5 to 10% declines in private construction ahead, Fisher said. He further noted a 6% decline year-to-date in combined highway and bridge contract awards.