11 Rental-Industry Stocks Riding a Rebound (Update2)

(Story updated to add that Cintas' third-quarter profit rose 29%, and the company raised its 2012 outlook.)

BOSTON ( TheStreet) -- The economic axiom "a rising tide lifts all the boats" is particularly true for the rental and leasing industry these days.

Potentially fast-growing businesses gearing up to meet stronger demand, but still nervous about the future after a prolonged recession, are more apt to rent or lease than to buy in order to avoid making long-term financial commitments.

Those that could benefit the most include companies that rent big-ticket items such as trucks and construction equipment, as a housing recovery, a domestic oil-drilling boom and new infrastructure projects are expected to compete for the gear they need to get the job done.

S&P Capital IQ said in a recent research note that "there is pent-up demand for equipment after several years of laggard construction demand" and now, since construction and industrial companies delayed the purchase of new equipment and have aging fleets, there's not enough equipment on hand for new capital projects.

But a host of other industry players do better in times of a growing economy as well. For example, employee travel picks up dramatically, boosting car rental firms' earnings, and households become more mobile as people are more apt to criss-cross the country to areas where there are better job opportunities, which increases demand for rentals of everything from moving vans to home furnishings.

And once the economy does reach some critical mass, the pent-up demand for cars, trucks, bulldozers and couches means that rental companies will be fully booked and can get top dollar in new rental and lease negotiations.

Shares of firms in the rental and leasing services industry are up an average of 16% this year, and 52% over three years, as tracked by Morningstar, versus the S&P 500's 12.6% and 24%, respectively.

Here are 11 stocks of rental and leasing companies that have historically benefited from a rising economy in inverse order of their returns this year:

11. Rent-A-Center ( RCII)

Company profile: Rent-A-Center, with a market value of $2 billion, has about 3,000 rent-to-own stores that offer furniture, furnishings, home electronics and appliances.

Investor takeaway: Its shares are down 5.4% this year, but have a three-year, average annual return of 26%. Analysts give its shares five "buy" ratings, two "buy/holds," and four "holds," according to a survey of analysts by S&P. It's expected to earn $3.10 per share this year which would give it a price/earnings ratio of 11. Earnings per share have grown steadily over the past six years, to $2.66 per share in 2011.

10. Aaron's ( AAN)

Company profile: Aaron's, with a market value of $2 billion, rents and sells residential and office furniture, consumer electronics, and home appliances. It typically features name brands.

Investor takeaway: Its shares are down 2.3 % this year but have a three-year, average annual return of 23%. Over a 15 year period they have returned 18% annually. Analysts give its shares four "buy" ratings, three "buy/holds," and five "holds," according to a survey of analysts by S&P. Revenue and profits have grown almost steadily over the past six years, to $1.43 per share last year, when it recorded huge cash flow of $2.09 per share.

9. McGrath RentCorp ( MGRC)

Company profile: McGrath, with a market value of $767 million, rents and sells mobile modular offices and classrooms. It also has an electronic test equipment rental division and Adler Tank Rentals, which provides containers for the storage of hazardous and non-hazardous liquids and solids. Those tanks are in growing demand at oil and gas field drilling sites for the storage and disposal of waste water and byproducts.

Investor takeaway: Its shares are up 13% this year and have a three-year, average annual return of 28%. Analysts give its shares one "buy" rating, one "buy/hold," and one "hold," according to a survey of analysts by S&P. It's expected to earn $2.03 per share this year, which would give it a 16 price/earnings ratio.

8. Cintas ( CTAS)

Company profile: Cintas, with a market value of $5 billion, rents and sells corporate identity uniforms, and provides entrance mats, cleaning services and supplies, first aid products, and document management and shredding services. It does much better in times of higher employment so will benefit from the rising economy. On Tuesday, Cintas reported that for the quarter ended Feb. 29, it earned 58 cents per share, up from 41 cents a year earlier, besting analysts' consensus estimates of 52 cents. The company also said that it now expects profit of $2.24 to $2.27 per share for the fiscal year that ends in May, up from its previous estimate of $2.16 to $2.20 per share.

Investor takeaway: Its shares are up 16% this year and have a three-year, average annual return of 22%. Analysts give its shares three "buy" ratings, four "buy/holds," five "holds," one "weak hold," and one "sell," according to a survey of analysts by S&P. It's expected to earn $2.19 per share this year, and grow by 11%, to $2.44 per share, in 2013. S&P has it rated "buy," and says: "We expect (it) will maintain its tight control over administrative expenses, and also benefit from positive operating leverage tied to improving volumes."

7. Dollar Thrifty Automotive ( DTG)

Company profile: Dollar Thrifty, with a market value of $2.3 billion, owns, operates, and franchises car rental facilities throughout North America and internationally.

Investor takeaway: Its shares are up 16% this year and have a three-year, average annual return of 350%. Analysts give its shares two "buy" ratings, and four "holds," according to a survey of analysts by S&P. It's expected to earn $5.07 per share this year, and that that will grow to $5.22 next year. It had $1.5 billion in revenue last year, its best year since 2007, before the recession.

6. RSC Holdings ( RRR)

Company profile: RSC, with a market value of $2.3 billion, is one of the three largest equipment rental companies in North America. Its customers are mainly nonresidential and industrial construction companies and rentals make up about 85% of total revenue.

Investor takeaway: Its shares are up 21% this year and have a three-year, average annual return of 63%. It's expected to earn 64 cents per share this year and grow that by 68% to $1.24 in 2013. RSC Holdings reached a $4.2 billion merger agreement with competitor United Rentals that was announced in December and is still pending. For that reason, analysts have its shares rated "hold."

5. Amerco ( UHAL)

Company profile: Amerco, with a market value of $2 billion, is parent company of U-Haul International which rents trucks, automobile trailers, and support products. It also owns the property insurer Republic Western Insurance, the life and health insurer Oxford Life Insurance, and Amerco Real Estate, which owns U-Haul properties.

Investor takeaway: Its shares are up 25% this year and have a three-year, average annual return of 55%. Analysts give its shares two "buy" ratings according to a survey of analysts by S&P. For fiscal year 2012, analysts estimate it will earn $11 per share and that will grow by 13% to $12.47 in 2013.

4. Hertz Global Holdings ( HTZ)

Company profile: Hertz, with a market value of $6.3 billion, is one of the top three car-rental firms in North America.

Investor takeaway: Its shares are up 31% this year and have a three-year, average annual return of 74%. Analysts give its shares six "buy" ratings, according to a survey of analysts by S&P. S&P doesn't have it rated, but reports that the technical indicators it tracks are currently "bullish." Hertz posted revenue of $8.3 billion last year and earned 40 cents per share after three straight losing years.

3. Avis Budget Group ( CAR)

Company profile: Avis, with a market value of $1.5 billion, rents cars and trucks under the Avis and Budget brand names.

Investor takeaway: Its shares are up 33% this year and have a three-year, average annual return of 196%. Analysts give its shares six "buy" ratings, one "buy/hold," and one "hold," according to a survey of analysts by S&P. It's expected to earn $1.55 per share this year and grow that by 12% to $1.73 next year. Its revenue jumped 14% in 2011, but it posted a loss of 28 cents per share.

2. United Rentals ( URI)

Company profile: United Rentals, with a market value of $2.6 billion, rents and sells construction equipment, ranging from heavy machinery to hand tools, at more than 700 locations in the U.S. and Canada.

Investor takeaway: Its shares are up 42% this year and have a three-year, average annual return of 119%. Analysts give its shares nine "buy" ratings, three "buy/holds," and one "hold," according to a survey of analysts by S&P. S&P has a "strong buy" rating on its shares and says "We see revenues rising 18% in 2012 after a 17% increase in 2011. We look for (the company) to benefit from higher rental rates and improved utilization stemming from better rental demand." United Rentals reached an agreement to buy competitor RSC Holdings for $4.2 billion last December in a deal that is still pending.

1. H&E Equipment Services ( HEES)

Company profile: H&E, with a market value of $720 million, sells, rents, and provides parts and service support for new and used heavy construction equipment, including cranes, earthmoving equipment, and industrial lift trucks.

Investor takeaway: Its shares are up 55% this year, 62% in the past three months, and have a three-year, average annual return of 51%. Analysts give its shares two "buy" ratings, three "buy/holds," and three "holds," according to a survey of analysts by S&P. "After rising 25% in 2011, revenues are seen growing 11% for 2012 and 8% for 2013," according to S&P Capital IQ, which has a "buy" rating on the shares.

>>To see these stocks in action, visit the 11 Rental-Industry Stocks Riding a Rebound portfolio on Stockpickr.
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