United Rentals: Valuation Compression Amid Persistent Margin Pressures

Initiate at Hold, $679 PT.  United Rentals, Inc. (URI) operates the largest equipment rental network

in North America, delivering a broad suite of general and specialty solutions to construction, industrial, and municipal customers from 1,360 locations globally. Underneath the cyclical veneer lies a dominant market share player that has used specialty segments to capture structural demand tailwinds, but the setup is anything but simple. While fleet expansion and strong specialty rental momentum will drive MSD top-line growth, we see a positive revenue offset by incremental margin pressures from ancillary services and fleet repositioning. As such, our FY25 and FY26 EPS estimates sit -0.7% and -1.7% below consensus, respectively, with a highly explicit 30-40bps below street margin haircut to reflect mix shift to lower-margin businesses. We believe the street multiple (18x P/E) reflects an overly bullish scenario and does not reflect the severity of a "higher for longer" real rate and sticky inflation backdrop, two persistent drags on capital-intensive businesses with exposure to inputs and credit cycles. To that end, we apply a blended 14.5x FY26E P/E multiple, in line with historical levels that would coincide with a more normalized credit environment and drive a PT ~5% below current levels. Upside could come from outsized large-scale Federal Infrastructure spending relative to private sector weakness, but risk skew is to the downside should macro or input cost surprises hit. On balance, risk/reward is fair with long-term structural strength offset by a valuation that leaves little margin for error.