A potential vaccine against COVID-19 is a potential "cure" for non-residential equipment rental companies like United Rentals, Inc. (NYSE:URI), according to BofA Securities.
The United Rentals Analyst: Ross Gilardi upgraded United Rentals' stock from Neutral to Buy with a price target lifted from $209 to $275.
The United Rentals Thesis: Gilardi said United Rentals' direct exposure to construction and industrial customers, utilities and municipalities bode well ahead of a potential COVID-19 vaccine. Specifically, industrial production is showing signs of a rebound while rental time utilization is recovering.
While encouraging, there aren't enough "pockets of strength" to support a rebound and this is where the vaccine fits into the bullish narrative.
Industrial MRO (35% of rental revenue) should benefit the most from pent up maintenance needs while urban infrastructure maintenance projects on hold could pick up after the vaccine.
Meanwhile, management's tone during its third-quarter earnings conference sounded "a little more positive" on capital spending. The company isn't committing to any specific number but expectations for a repeat of $900 million in gross capital spending "seems very low."
Encouragingly, Gilardi said United Rentals' stock starts to outperform when capital spending reaches a bottom. While the outperformance already started, the stock still has upside potential as "we think the bias is upwards on capex in 2021."
URI Price Action: Shares of United Rentals were trading higher by 1.7% Friday morning at $220.80.
Photo credit: Adam Keethler, via Wikimedia Commons