On Wednesday, KeyBanc Capital Markets maintained a Sector Weight rating on United Rentals (NYSE:URI) stock.
The firm's decision comes in the wake of United Rentals' announcement of a definitive agreement to acquire H&E Equipment Services, Inc. (NASDAQ:HEES) for $92 per share in an all-cash transaction.
The acquisition is slated for completion in the first quarter of 2025 and is anticipated to be beneficial to United Rentals' earnings per share (EPS) and free cash flow (FCF) in the first year following the close of the deal.
United Rentals expects the acquisition to yield both revenue and cost synergies over a two- to three-year period.
KeyBanc acknowledged United Rentals' proven success with previous acquisitions and anticipates that the company will achieve significant operating leverage in the long term by enhancing its geographic presence and expanding its core fleet.
However, KeyBanc expressed concerns regarding near-term impacts due to the continued weakness in local account activity, to which H&E Equipment Services is notably exposed, with approximately 60% of its business coming from this segment. The timing for a potential upturn in this area remains uncertain.
The research firm concluded that while the acquisition is likely to lead to long-term synergy realization and increase United Rentals' market share, the current share price already seems to reflect this optimism.
KeyBanc suggested that clearer visibility on future economic cycles and improvements in nonresidential market fundamentals would be needed before considering an active position in United Rentals' stock. Consequently, KeyBanc has chosen to maintain its Sector Weight rating and a price target of $7.50.
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