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Why United Rentals (URI) Is Climbing on Monday

NEW YORK (TheStreet) -- United Rentals (URI - Get Report) is climbing on Monday on news it will purchase National Pump and GulfCo.

By early afternoon, shares had added 3.8% to $91.88.

The industrial and construction rental company, the largest in America, said it would acquire the second-largest specialty pump renter in North America for around $780 million. As part of the agreement, the firm will also acquire GulfCo, a general rental business which operates two branches in Texas.

Of the $780 million purchase price, $15 million will be paid in stock and the remainder in cash.

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"National Pump provides an attractive new specialty offering which increases our penetration in growing end markets and advances over time our financial goals of delivering strong free cash flow and improved returns," United Rentals CEO Michael Kneeland said in a statement.

The pump rental segment is currently one of the largest and highest-growth specialty markets. United Rentals has been "executing its strategy of expanding its specialty businesses and this acquisition provides another significant product line with attractive margins and returns," it said in the statement.

The deal is expected to close early in the second quarter of 2014, with the addition accretive to United Rentals' free cash flow and EPS this year.

The company updated its fiscal year guidance. The Stamford, Conn.-based business anticipates revenue between $5.45 billion and $5.65 billion. Analysts surveyed by Thomson Reuters previously had forecast $5.42 billion.

Centerview Partners and Morgan Stanley acted as financial advisers to United Rentals, while Sullivan & Cromwell was legal counsel. Fulbright & Jaworski acted as National Pump's legal advisers.

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TheStreet Ratings team rates UNITED RENTALS INC as a Buy with a ratings score of B+. The team has this to say about their recommendation:

"We rate UNITED RENTALS INC (URI) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, impressive record of earnings per share growth, compelling growth in net income and expanding profit margins. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • URI's revenue growth has slightly outpaced the industry average of 6.6%. Since the same quarter one year prior, revenues slightly increased by 7.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Powered by its strong earnings growth of 227.50% and other important driving factors, this stock has surged by 63.10% over the past year, outperforming the rise in the S&P 500 Index during the same period. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
  • UNITED RENTALS INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, UNITED RENTALS INC increased its bottom line by earning $3.63 versus $0.64 in the prior year. This year, the market expects an improvement in earnings ($6.06 versus $3.63).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Trading Companies & Distributors industry. The net income increased by 241.5% when compared to the same quarter one year prior, rising from $41.00 million to $140.00 million.
  • The gross profit margin for UNITED RENTALS INC is rather high; currently it is at 59.79%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 10.46% is above that of the industry average.

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