Is It Too Late To Consider United Rentals After A 235% Five Year Surge?

• If you have been wondering whether United Rentals is still worth buying after such a huge multi year run, this breakdown will help you figure out if the current price still offers value or if most of the upside has already been captured.
• The stock has cooled off recently, down 1.7% over the last week and 6.6% over the past month, but it is still up 16.1% year to date and an impressive 135.2% over 3 years and 235.1% over 5 years.
• Those big long term gains have come as United Rentals has steadily expanded its rental fleet and footprint across North America, while benefiting from strong demand in construction and industrial activity. At the same time, investors have been weighing how cyclical exposure to infrastructure and non residential construction might shape the next leg of the story.
• On our checks, United Rentals scores a 4 out of 6 valuation score, suggesting it still looks undervalued on several fronts, but not all. In the rest of this article we will unpack what different valuation approaches say about the stock today, and finish by looking at a more nuanced way to think about its true worth beyond the headline numbers.

Find out why United Rentals's -6.9% return over the last year is lagging behind its peers.

Approach 1: United Rentals Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a business is worth today by projecting its future cash flows and then discounting those back to their value in the present. For United Rentals, the model used is a 2 Stage Free Cash Flow to Equity approach, based on cash flow projections in $.

The company generated roughly $1.93 billion in free cash flow over the last twelve months, and analysts expect this to rise to about $3.60 billion by 2028. Beyond the explicit analyst period, Simply Wall St extrapolates cash flows out over a ten year horizon, with projected free cash flow rising to around $5.86 billion by 2035 as growth gradually moderates.

When all those future cash flows are discounted back to today, the model arrives at an estimated intrinsic value of about $1,213 per share. Relative to the current market price, this output indicates the stock is roughly 34.0% undervalued, which indicates the market price may not fully reflect United Rentals potential for cash generation according to this model.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests United Rentals is undervalued by 34.0%. Track this in your watchlist or portfolio, or discover 926 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for United Rentals.

Approach 2: United Rentals Price vs Earnings

For a consistently profitable company like United Rentals, the price to earnings ratio is a useful way to see how much investors are paying for each dollar of current earnings. The higher the expected growth and the lower the perceived risk, the higher a normal or fair PE multiple tends to be, and vice versa.

United Rentals currently trades on about 20.14x earnings, which is slightly above the Trade Distributors industry average of around 19.41x but below the peer group average of roughly 24.18x. Simply Wall St also calculates a Fair Ratio of 30.99x, a proprietary estimate of what a reasonable PE might be once you factor in the company’s earnings growth profile, profitability, industry, market cap and specific risks.

This Fair Ratio provides a more tailored benchmark than a simple comparison with peers or the broad industry, because it adjusts for United Rentals own strengths and risk factors rather than assuming it should trade in line with averages. With the current PE of 20.14x sitting well below the Fair Ratio of 30.99x, the multiple based view suggests the stock is still trading at a discount to its fundamentals.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1441 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your United Rentals Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple way to connect your view of United Rentals business story with the numbers behind its future revenue, earnings, margins and fair value. A Narrative is your personal storyline for the company, translated into a financial forecast and then into a fair value estimate, so you can clearly see how your assumptions compare to the current share price. On Simply Wall St, Narratives are easy to create and explore on the Community page, where millions of investors share their perspectives in a structured, comparable format. Each Narrative continuously updates as new information, such as earnings or major news, flows in, helping you decide when the gap between Fair Value and Price suggests it is time to buy, hold or sell. For example, some United Rentals Narratives currently see fair value near the most bullish target of about $1,075, while more cautious investors anchor closer to roughly $592. This illustrates how different stories about the same company can lead to very different conclusions about what the stock is really worth.

Do you think there's more to the story for United Rentals? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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