united rentals, inc. (uri) april 7, 2017 · reduction benefits $40 million beginning in 2019 and...

Importantdisclosuresappearonthelastpageofthisreport.

TheHenryFund

HenryB.TippieSchoolofManagementSamNorman[[email protected]] UnitedRentals,Inc.(URI) April7,2017Industrials–IndustrialEquipmentRental StockRating NoAction

InvestmentThesis TargetPrice $124-126UnitedRentalsstandstobenefit fromexpectationsforstrong industrialandconstructionactivityinthecomingyears.However,webelievethatthemarkethaseffectivelypricedinthecompany’sgrowthpotentialatitscurrentprice.Therefore,werecommendnoactionbasedonourtargetpriceof$124-126.DriversofThesis• WeexpectURI’srevenuestogrowataCAGRof5.43%through2021,driven

byparticularlystronggrowthin2017and2018• In2017and2018,weexpect5%growthinrevenuesfromnon-construction

andcommercialconstructioncustomers• Weprojectthatrevenuesfromresidentialconstructioncustomerswillgrow

by6%in2017and7%in2018• URI’srecentacquisitionofNESRentalsisexpectedtocontributeannualcost-

reductionbenefits $40millionbeginning in 2019andannual cross-sellingbenefitsof$35millionbeginningin2020

• Thefirmwillcontinuetobenefitfromscale-relatedadvantagesinthefuture,including pricing power, purchasing efficiencies and fleet managementcapabilities.Webelievethattheseadvantageswillallowthefirmtomaintainmarginsmovingforwarddespitelaggingrentalrates.

RiskstoThesis• Ourmodelassumesstronggrowththrough2019.URI’svaluewilldecrease

iftheeconomiccycleturnsdownwardsoonerthanwepredict,whichcouldoccur because of faster-than-anticipated interest rate hikes, risingunemployment,fallingcommoditypricesoracombinationthereof.

• A significant acquisition or merger among smaller industry participantscoulddiminishthefirm’sscale-relatedadvantages

HenryFundDCF $124.50HenryFundDDM $98.87RelativeMultiple $169.72PriceData CurrentPrice $123.4152wkRange $56.01–134.28Consensus1yrTarget $133.20KeyStatistics MarketCap(B) $10.50SharesOutstanding(M) $84.46InstitutionalOwnership 99.24%FiveYearBeta 1.89DividendYield 0.00%Est.5yrGrowth 10.8%Price/Earnings(TTM) 20.4Price/Earnings(FY1) 12.8Price/Sales(TTM) 1.88Price/Book(mrq) 6.37Profitability OperatingMargin 24.6%ProfitMargin 9.8%ReturnonAssets(TTM) 4.7%ReturnonEquity(TTM) 36.2%

EarningsEstimates

Year 2014 2015 2016 2017E 2018E 2019EEPS $5.54 $6.14 $6.49 $9.62 $10.81 $12.40

growth 33.8% 10.8% 5.7% 48.3% 12.3% 14.7%12MonthPerformance CompanyDescription

United Rentals is the largest equipment rentalcompanyintheworld,with887rentallocationsintheUnitedStatesandCanada.Thecompanyrentsindustrial equipment through two reportablesegments:generalrentalsandtrench,powerandpumprentals.Thegeneralrentalssegmentservesindustrial companies, manufacturers, utilities,municipalities and homeowners. The trench,power and pump segment rents specialtyconstructionequipmenttocompaniesinvolvedininfrastructure projects, municipalities andindustrialcompanies.

20.4

36.2

6.7

20.1 19.7

12.7

0

10

20

30

40

P/E ROE EV/EBITDA

URI Sector

-10%

10%

30%

50%

70%

A M J J A S O N D J F M

URI S&P500

Source:YahooFinance

Source:Bloomberg

EXECUTIVESUMMARY

UnitedRentalsstandstodisproportionatelybenefit fromfuturegrowthintheequipmentrentalindustrybasedonitspositionas an industry leader. The companybenefitsfrom a number of scale-related competitive advantagesincludingbetterpricingpower,purchasingefficienciesandcostreduction.Weexpectindustrygrowthtocomefromrising general industrial activity in the United States, aswell as strong commercial and residential constructionactivityintheintermediate-term.Basedonthesefactors,webelievethatUnitedRentalshasthepotentialtogrowrevenuesataCAGRof5.43%through2021.

Despite our optimistic outlook for future growth, werecommendnoactionbasedonatargetpriceof$124-126.Webelieve that themarkethaseffectivelypriced in thecompany’s growthpotential in its current sharepriceof$123.41.

COMPANYDESCRIPTION

UnitedRentalsinthelargestequipmentrentalcompanyintheworld,specializinginrentalsofindustrialequipment.The company serves construction and industrialcompanies, manufacturers, utilities, municipalities,government entities and homeowners, among othercustomers.UnitedRentalsmaintains769rentallocationsintheUnitedStatesand118rentallocationsinCanada.Itsbranchnetworkoperatesin49USstates,everyCanadianprovinceandin99outof100ofthelargestmetropolitanareas intheUnitedStates1.Thecompany’srevenuesarederived from five sources: equipment rentals, sales ofrental equipment, sales of new equipment, contractorsupplies sales and service and other revenues. UnitedRentals reported revenues of $5.76 billion in 2016. Thefollowing chart shows the firm’s revenues by source in2016:

EquipmentRentals

URI generated roughly 86 percent of its revenues, orroughly $4.94 billion, from equipment rentals in 20161.Within equipment rentals, the company maintains tworeportable segments: general rentals and trench, powerandpumprentals.

General rentalsaccounted for83%of rental revenues infiscal 20161. The general rentals segment includes therental of general construction and industrial equipment,aerialworkplatforms,generaltoolsandlightequipment.

Thetrench,powerandpumpsegmentaccountedfor17%ofrentalrevenuesinfiscal20161.Thetrench,powerandpumpsegmentiscomprisedoftheTrenchSafetyregion,the Power and HVAC region and the Pumps Solutionsregion. The Trench Safety region rents trench safetyequipment such as trench shields, aluminum hydraulicshoring systems, slide rails, crossing plates, constructionlasersandlinetestingequipmentforundergroundwork.The Power and HVAC region rents equipment such asportable diesel generators, electrical distributionequipment, and temperature control equipment. ThePumps Solutions region rents pumps primarily used byenergyandpetrochemicalcustomers1.

TargetMarkets

For forward-looking estimates and valuation, weexamined the company’s rental operations primarilybasedon its targetendmarket industries. The followingchart shows rental revenues from the company’s threeendmarketcustomerbasesin2016:

85.75%

8.61%

2.50% 1.37% 1.77%

2016Revenue($5.76B)EquipmentRentals

SalesofRentalEquipmentSalesofNewEquipment

ContractorSuppliesSalesService&OtherRevenuesSource:URI201610-K

83%

17%

2016RentalRevenue($4.94B)

GeneralRentals

Trench,Power&Pump

Source:URI201610-K

Source:UnitedRentals201610-K

IndustrialandNon-ConstructionRentals

Roughly 51% of the company’s rental revenues in 2016wereattributabletoindustrialandothernon-constructioncustomers. Industrial and other non-construction rentalrevenueshavegrownataCAGRof6.3%since2013.Theserevenues primarily reflect rentals to manufacturers,energy companies, chemical companies, paper mills,railroads, shipbuilders, utilities, retailers andinfrastructure entities. Industrial and non-constructionrevenuesareconsideredhighlycyclicalandarecloselytiedtothestrengthofendmarketindustriesandtheeconomyas a whole. Industrial and other non-constructionrevenuesshrunkby0.16%in2016,plaguedbyweaknessinoilandgasandothercommoditymarkets.Weaknessincommodity markets was offset by general strength inmanufacturingandotherindustrialindustries2.

In the near-term, we expect continued growth fromindustrialandothernon-constructioncustomersbasedonexpectations for favorable economic conditions. Theseexpectationsarebasedoncurrenteconomicstrengthandourfavorableshort-termoutlookforindustrialproduction,oilandgasmarketsandinfrastructurespending.

The IndustrialProduction Index,whichmeasuresactivityin US manufacturing, mining and utilities industries,remainsnearall-timehighsafterrapidgrowthsincemid-2009.Webelievethatmanufacturing,miningandutilitiescustomers will continue to operate in a favorableenvironment based on the political push for Americanmanufacturing and commodity price appreciation in thenear-term(seeeconomicoutlookformoreinformation).

We also expect growing demand from oil and gascustomers based on our predictions for oil prices in thenear term. Oil prices currently sit at $50.60 per barrel.However,weanticipatethatoilpriceswillrisetoroughly$55perbarrelinthenextsixmonthsandtoroughly$60perbarrelinthenexttwoyears,drivenprimarilybyOPECsupply cuts. We expect oil price appreciation to beaccompanied by increasing oil rig counts and drillingactivity,atrendwhichhasalreadybeguninearly2017(seeeconomicoutlooksection).Growingdemandfromoilandgas customers should contribute to growth in industrialandnon-constructionrevenuesinthenear-term.

Infrastructurespendingalsostandsto increase industrialand non-construction revenues moving forward. TheprospectsforincreasedinfrastructurespendingimprovedgreatlywiththeelectionofPresidentTrumpinlate2016.Trump campaigned, in part, on a promise to rebuildAmerica’sagingroads,bridges,airportsandotherpublicinfrastructure.ThefollowingchartdemonstratesthetrendofagingpublicinfrastructureintheUnitedStates:

Source:BureauofEconomicAnalysis

President Trump’s initial proposals have targeted $1trillion in infrastructure spending in the next decade3,4.While an infrastructure bill of that size is unlikely tomaterializebytheendof2017,legislatorsonbothsidesoftheaislehaverecognizedtheimportanceofrevitalizingUSpublicinfrastructureinthecomingyears.AccordingtotheAmericanAssociationofCivilEngineers,over$3trillionininfrastructure is necessary to adequately repair thecountry’s crumbling infrastructure5.We believe that theattention being paid to infrastructure spending will

51% 45%

4%

2016RentalRevenuebyCustomerType

IndustrialandOtherNon-Construciton

CommercialConstruction

ResidentialConstruction

2016 RentalRevenue:$4.94B

contribute to growing revenues for URI’s industrial andothernon-constructionsegmentinthefuture.

Based on these predictions, our model projects thatindustrialandothernon-constructionrentalrevenueswillgrowby5%in2017and2018,4.5%in2019,4%in2020and3%in2021.

CommercialConstructionRentals

Commercial construction customers accounted forroughly 45% of United Rentals’ rental revenues in 2016and have grown at CAGR of 4.83% over the last threeyears.Themajorityofcommercialconstructionrevenuesare derived from the construction and remodeling offacilities for office space, lodging, healthcare,entertainment and other commercial purposes1.Commercial construction revenues shrunk by 0.16% in2016afterthecompanyexperiencedlaggingdemandfromcommercial construction customers in the first half of2016. However, total nonresidential constructionspending remains high. The following chart shows totalnonresidentialconstructionspendinglevelssince2007:

Source:FederalReserveEconomicData(FRED)

Asindicatedbythechart,nonresidentialspendinghoverednear decade-highs throughout 2017. According to theDodge Construction Outlook Report, a mainstay inconstructionindustryforecasting,totalconstructionstartsgrewslowlyatanestimatedrateof1%in2016after11%growth in20156.The2016shortfallwasdrivenprimarilybylagginggrowthinthefirsthalfoftheyear,worsenedbythecomparisontounusuallyelevatedactivityduring thefirsthalfof2015.However,theshortfallin2016begantogrowsmalleras2016progressed,easingconcernsaboutthe beginning of a cyclical decline in the constructionindustry6. Instead, the Dodge Construction Outlookindicates that the industry is entering a more mature

phaseofitsexpansion,withslowergrowththantheperiodfrom 2012-2015 but growth nonetheless. Moderate jobgrowthandhealthymarketfundamentalsforcommercialreal estate are expected to contribute to near-termconstruction spending growth. For 2017,Dodgepredictsthat total construction starts will rise by 5%, whilecommercial construction starts are expected to growby6%in20176.

The positive Dodge Construction Outlook Report issupported by relatively strong construction backlogstatistics. The Construction Backlog Indicator (CBI) is aforward-looking economic indicator that reflects theamountofworkthatwillbeperformedbycommercialandindustrial contractors in the nine months ahead. Thefollowing chart illustrates recent trends in theConstructionBacklogIndicator:

Source:AssociatedBuildersandContractors

TheCBIfellby4%duringthelastquarterof2016.Whiletherecentlyquarterlydeclinemay indicatethearrivalofmoremoderategrowth,theCBIremainsstrongnear2012-2015levelsdespitetherecentquarterlydecline.Whilethecommercial construction industry grew at an estimatedCAGR of 11.8% from 2011-2016, growth is expected toslowto roughly4%over thenext fiveyears7.Weexpectthemajorityofthisgrowthtocomein2017and2018.Wealso believe that United Rentals’ position as a rentalmarket leader will allow the company to capture adisproportionate amount of total industry growth. Assuch,ourmodelassumescommercialconstructionrentalrevenuegrowthof5%in2017and2018,4%in2019and2020and3%in2021.

ResidentialConstructionRentals

Residential construction end markets contributedapproximately4%URI’srentalrevenuesinfiscal2016andhave grown at a 3-year CAGR of 5.60% since 2013.

myf.red/g/de7S

480,000

520,000

560,000

600,000

640,000

680,000

720,000

Jan2007 Jan2008 Jan2009 Jan2010 Jan2011 Jan2012 Jan2013 Jan2014 Jan2015 Jan2016 Jan2017

fred.stlouisfed.org

Source:U.S.BureauoftheCensus

TotalConstructionSpending:Nonresidential

MillionsofDollars

Residential rentals reflect rentals of equipment for theconstruction and remodeling of homes. As such,residential construction rentals are closely tied to homeconstructionandremodelingactivity.Thefollowingchartshowsgrowthtrendsinresidentialconstructionoverthepast5years:

Source:USCensusBureau

The Dodge Construction Outlook Report predicts thatsinglefamilyhousingconstructionwillriseby12%in2017basedon improvingaccess tohomemortgage loansandemployment growth6. Dodge predicts that multifamilyhousing will be flat after peaking in 20156. Thesepredictions are in-line with predictions given by theNationalAssociationofHomeBuilders.ThefollowingchartshowstheNationalAssociationofHomeBuilders’growthforecastsforhousingconstructionin2017and2018:

2017 2018

TotalHousingStarts 5.58% 7.31%

SingleFamily 9.02% 12.43%

Multifamily -1.32% -4.01%

NewSingleFamilySales 11.97% 13.17%

ExistingSingle-FamilyHomeSales 0.69% 1.86%

Source:NationalAssociationofHomeBuilders

These growth forecasts demonstrate the generallyfavorable market conditions for URI’s residentialconstruction customers in the coming years.Wepredictthat United Rentals’ revenue growth from residentialconstruction will outpace that of nonresidentialconstruction. Our model assumes 6% growth innonresidentialconstructionrevenuesin2017,7%growth

in2018,5%growthin2019,4%growthin2020and3%growthin2021.

SalesofRentalEquipment

Outside of equipment rentals, United Rentals receivesroughly 9% of its revenues from the sale of its rentalequipment.RentalequipmentsaleshavegrownataCAGRof0.41%overthelastthreeyears.

Thecompanysellsitsusedequipmenttomanagerepairsandmaintenancecosts,aswellasthecompositionandsizeofitsfleet1.Salesofrentalequipmentdependonanumberoffactors,includinggeneraleconomicconditions,growthopportunities,themarketforusedequipment,theageofthe company’s fleet and the need to adjust fleetcompositionforchangingcustomerdemands1.Weprojectthat rental equipment sales revenues will grow by 3%annually throughout the forecast horizon, as fleetutilization increases from growing industrial andconstructiondemand.

SalesofNewEquipment

In addition to selling used rental equipment, UnitedRentalssellsnewequipmentformanyleadingequipmentmanufacturers.

Sales of new equipment accounted for roughly 2.5% ofrevenues in 2016 and have grown at a CAGR of 11.46%since2013.Thetypeofequipmentsoldvariesbylocation,but includes products such as aerial lifts, forklifts,compressorsandgenerators,amongothers1.WepredictthatUnitedRentalswillcontinuetogrowrevenuesinthissegment as it increases its scale and becomes a moreviabledistributionchannelforequipmentmanufacturers.As such, ourmodel assumes5%growth in this segmentthrough2020and4%growthin2021.

ContractorSupplySales

UnitedRentalsearnedjustover1%ofitsrevenuesin2016fromcontractorsupplysales.Contractorsupplysaleshaveshrunkbyacompoundannualrateof-3.16%since2013.These revenues are earned by selling constructionconsumables,tools,smallequipmentandsafetysuppliesto contractors. Our model predicts no growth in thecontractorsupplysalessegmentthroughouttheforecasthorizon,asthefirmhasbeguntoshiftitsfocustoitscorerentalbusiness.

ServiceandOtherRevenues

Serviceandotherrevenuesaccountedforjustshyof2%oftotalrevenuesin2016andhavegrownataCAGRof9.35%since 2013. These revenues are earned by performingrepairandmaintenanceservicesandsellingreplacementparts for equipment that is owned by customers1. WepredictthatgrowthinservicerevenueswillcloselymirrortotalrevenuegrowthforUnitedRentalsmovingforward,as service revenuesaredependenton theoveralluseofindustrialmachinery.Therefore,ourmodelassumesthatrevenuesfromthissegmentwellgrowby5%in2017and2018,4%in2019and2020and3%in2021.

MarginsbySegment

ThefollowingchartshowsURI’sgrossmarginsearnedoneachofitsbusinesslinesin2016:

2014 2015 2016EquipmentRentals 43.4% 43.4% 42.3%SalesofRentalEquipment 42.1% 42.2% 42.1%SalesofNewEquipment 19.5% 16.6% 17.4%ContractorSuppliesSales 30.6% 30.4% 30.4%ServiceandOther 63.6% 59.6% 59.8%TotalGrossMargin 42.8% 42.6% 41.7%

Source:URI201610-K

In2016,URIsawa2.2%declineinrentalratesduetoweakdemandfromkeyendmarketindustries.Thisdecreasedthefirm’srentalgrossmarginsbyover1%anditstotalgrossmarginsbyroughly0.9%duringthefiscalyear.Weprojectthatthecompany’stotalgrossmarginswillremainatapproximately42%throughoutourfive-yearforecasthorizon.Webelievethatthisassumptionisreasonablegivenourexpectationsforthecompany’srevenuecompositiontoremainrelativelyunchangedthrough2021.URIalsohastheindustry’sstrongestpricingandpurchasingpowerduetoitssize,whichwebelievewillallowthefirmtomaintainitsrentalandtotalgrossmarginsdespitethepotentialforlaggingrentalratestocontinue.

CompanyAnalysis

WebelievethatUnitedRentalsiswell-positionedtotakeadvantage ofmoderate growth in the rental equipmentindustry in the next five years. The firm benefits fromseveralcompetitiveadvantagesthatwillaiditsgrowthin

the future. For one, the company boasts the industry’slargestandmostdiverseequipmentfleet,whichallowsthecompanytoservelargecustomersthatrequiresubstantialquantitiesandvarietiesofequipment.Thecompanyalsooffersitsproductsthroughamuchlargernetworkofrentallocations. The following chart shows United Rentals’carryingvalueofrentalequipmentandnumberofrentallocationscomparedtothoseofitsclosestpublicly-tradedcompetitors, Herc Holdings (HRI) and H&E EquipmentServices(HEES):

URI HRI HEESNetRentalEquipment($M) 6,189 2,390 894RentalLocations 887 270 78

Source:FactSet

The company’s size provides purchasing power thatenablesthefirmtomoreeffectivelynegotiatepricingandwarranty terms with vendors1. The company also has adedicated sales force for establishing and expandingrelationshipswithlargecompanies,particularlythosewitha national ormulti-regional presence1. Lastly, the firm’ssize allows for an around the clock customer servicecenter,whichaidsiscustomerrelationsandretention1.

UnitedRentalsalsobenefitsfromanumberofoperationalefficiencies as a result of its scale. For instance, thecompany’s geographic diversity allows for equipmentsharing among branches. Equipment sharing increasesutilization rates because equipment that is idle at onebranch can be marketed and rented through otherbranches.Thissystemissupplementedbythecompany’shost of proprietary and licensed information technologysystems, which reduce costs and service time bydetermining equipment availability, coordinatingequipment delivery, monitoring business activity in realtimeandgivingcustomersaccesstotheiraccountsonline1.These operating efficiencies allow United Rentals togeneratesubstantiallyhighermarginsthanitspeergroup,asshowninthefollowingchart:

5-YearAverageMargins

URI HRI HEESGrossMargin 37.16% 22.89% 30.87%OperatingMargin 24.10% 4.88% 11.58%NetMargin 7.80% -1.27% 4.21%

Source:FactSet

Industrytrendsindicatethatconsolidationislikelyamongcompetitors to achieve the scale-related benefitsdescribed above. United Rentals and the company’scurrent management team has a history of makingaggressiveacquisitionsinthepast.In2012,UnitedRentalscompleteda$4.2billionmergerwithRSCHoldingsInc.,itsclosestindustrycompetitor.Thismergerroughlydoubledthe size ofUnitedRentals and created amarket-leadingrental company8. The firm’s desire to grow throughacquisitions was further exhibited in January of 2017,when United Rentals announced that it had agreed toacquireNESRentalsforroughly$965millionincash9.Webelievethatthecompanywillcontinuetomakeselectiveacquisitions in the future further realize scale-relatedcompetitiveadvantages.

United Rentals does present risk due to its significantindebtedness.AsofDecember31st,2016,UnitedRentals’debttotaledroughly$7.8billion1.Thefollowingchartgivesmore information regarding URI’s debt position as ofDecember31st,2016:

2016DebttoTotalAssetsRatio 0.65

DebttoEquityRatio 4.73InterestCoverage 2.77S&PCreditRating BB-

Source:URI201610-K,Bloomberg

UnitedRentalsBB-creditratingputsthefirmsbondsinthespeculativecategory.Thecompany’screditratingissimilarto that of other industry players, as S&P assigns a BB-rating to H&E Equipment Services and a rating of B+ toHercHoldings.Despitethefirm’shighleverage,webelievethattheriskisoffsetbythecashgenerationpowerofthecompany’s business model. In 2016, URI reported cashflow from operating activities, which it uses to servicedebt,ofroughly$2billion1.Thefollowingchartsshowthecompany’s debtmaturity schedule as of December 31st,

2016,aswellasourestimatesforthecompany’soperatingcashflowandinterestcoverageratiothrough2021(dollarfiguresin$M):

2017 2018 2019 2020 2021 ThereafterDebtandCapitalLeases

597 21 12 4 1,656 5,553

InterestDueonDebt 363 356 356 355 334 891

OperatingLeases 140 112 85 59 36 2

ServiceAgreements 14 3 0 0 0 0

PurchaseObligations 853 0 0 0 0 0

Total 1,967 492 453 418 2,026 6,485

Source:URI201610-K

2017 2018 2019 2020 2021OperatingCashFlow 2,243 2,273 2,399 2,517 2,601

InterestCoverage 3.53 3.61 3.77 3.90 3.91

Source:HenryFundEstimates

As evidenced by the charts above, we believe that thecompanywillcontinuetogeneratesufficientcashtomeetits debt obligations. We also believe that improvingprofitability beginning in 2017 dismisses concerns aboutthecompany’sabilitytomakeinterestpaymentsmovingforward.

Overall,webelievethatURI’scompetitiveadvantageswillallowthefirmtooutpaceindustrygrowthinthenextfiveyears.Our assessmentof the company’s operations andourtargetmarketdemandforecastsleadustobelievethatthefirmwillgrowrevenuesbyaCAGRof5.43%through2021.Weexpectthattotalorganicrevenueswillgrowby4.79% in2017,whileweexpect total revenuegrowthof11.50% due to the NES merger. Management’s initialguidance for 2017 included projected organic revenuegrowth of roughly 3.5%. However, management hasprovided conservative guidance figures in the past andthereforewebelieveourgrowthestimatesarereasonablegiventhefirm’scurrentoperatingenvironment.

RECENTDEVELOPMENTS

AcquisitionofNES

On January 25th, 2017, United Rentals entered into adefinitive agreement to acquire NES Rentals forapproximately $965million in cash. The acquisitionwascompletedonApril3,2017.NESisoneofthetenlargestequipmentrentalcompaniesintheUnitedStateswith73branchesconcentratedintheeasternportionoftheUS.In2016,NESreportedrevenuesofroughly$369million9.

TheadditionofNES’sbranchlocationswillincreaseURI’sdensity in strategically importantmarkets, including theeast coast, the gulf states and the Midwest. The NESacquisitionisalsoexpectedtocreate$40millioninannualcostsavingsbeginningin2019–30millionfromreducingcorporateoverheadandtheremainderduetooperationalefficiencies2. In addition to cost synergies, the NESacquisitionisalsoexpectedtoprovideannualcross-sellingbenefitsof$35millionbeginning in20202.Managementhas also stressed that the NES acquisition will createfurther purchasing efficiencies and pricing power fromincreased scale2. Our model integrates management’sexpectationsfora$40millionmergerbenefitin2019anda$75millionmergerbenefitin2020and2021.

Q42016Earnings

UnitedRentalsreportedtotalrevenueof$1.52billionandadjusted EPS of $2.67 in the fourth quarter of 2016,beating revenue estimates by 1.85% and adjusted EPSestimatesby16.29%10.TheseQ4resultsboughttotal2016revenueto$5.76billionand2016adjustedEPSto$8.65,compared to total revenueof $5.82billionandadjustedEPSof$8.02in2015.Managementcitedpositiveinternaland external dynamics as the reason for the company’sstrongperformanceinQ4despitelaggingdemandinearly2016. Favorable internal dynamics included the firm’sstrategicapproachtobusinessdevelopment,whichledtonewcustomers2.Thecompanyalsomanagedtogrowitsfleetthroughcapitalexpenditureswhilemaintainingcostdiscipline.Externally,thecompanybenefittedfrombroad-baseddemandacrossgeographiesandproject styles ledby commercial construction, which it believes is anaffirmation of the company’s confidence in the currentmarketcycle2.

Moving forward, management is optimistic based on anumber of positive economic indicators. The Dodge

Construction Outlook, contractor backlogs, nationalsurveysbykeytradegroupsandCEOconfidencesurveysall point to strength for the company’s customers. Thecompany’s initial guidance for 2017 included organicrevenuegrowthofroughly3.5%.Ourmodelincorporatestotal organic revenue growth of 4.79% in 20172. Webelieve that our revenue growth assumptions arereasonable due to the company’s history of revenuesexceedingthehigh-endofmanagement’sguidance.

INDUSTRYTRENDS

Consolidation

Therentalequipmentindustryisexperiencinghighlevelsofconsolidationbasedontheindustry’smaturityandthecompetitiveadvantagesbeing realizedby larger industryplayers. As mentioned, United Rentals has been at theforefront of industry consolidation, with its $4.2 billionmergerwithRSCin2012anditsmorerecent$965millionacquisitionofNESthatislikelytobefinalizeinmid-2017.Sunbelt Rentals, the equipment rental industry’s secondlargest player, has also been active in the acquisitionmarketoverthepastfewyears.However,theexactdollarfigure of Sunbelt’s acquisitions is unknown because thecompanyisprivatelyheld.

Weexpectthatconsolidationwillcontinuetobeatrendinthe equipment rental industry in the years to come, aslargerfirmshaveproventohavecompetitiveadvantagesover smaller competitors. Our expectations for risinginterestratesmaypresentathreattoindustryM&Ainthefuture, asM&A deals structured with debt will becomemore costly (see economic outlook for more details oninterestrateforecasts).However,weexpectratechangestobegradualoverthenexttwoyears,whichwebelievewillpreventanysignificantshocktotheindustryorM&Amarkets.

LaggingRentalRates

In 2016, industry players struggled to keep rental rateshigh in light of slow demand from several end marketindustries1.The industry’s largestplayer,UnitedRentals,sawa2.2%declineinrentalratesdespitea3.1%increasein rental volumeduring20161.H&EEquipmentServices’rentalratesdeclinedby0.6%in2016,whileHercHoldingsdidnotprovideinformationaboutrentalratesinitsmostrecentannualreport.

Industryplayersareconfidentthattheoverallpricecycleisinagoodposition,givenexpectationsforstrongdemandin 2017 and 2018. However, management teams seemunconfident that the 4-6% rental rate growth that wasexperienced in the beginning of the post-2009 recoverywillberecapturedinthecomingyears2.Whilewebelievetheindustry’slargestparticipantsmayhavethepotentialtoincreaseratesintheneartermbasedonexpectationsfor strong customer demand, our revenue growthassumptions are based primarily on volume growththroughouttheforecasthorizon.

MARKETSANDCOMPETITION

UnitedRentalsprimarilyoperateswithintwosegmentsoftheequipment rental industry: heavyequipment rentalsand tool and equipment rentals. The heavy equipmentrental industry serves diverse end-markets and includesfirms that rent or lease products including bulldozers,earthmoving equipment, cranes,well-drillingmachinery,aircraft, railcars and steamships11. The tool and light-to-mediumequipmentrentalindustrycomprisescompaniesthat rent tools and small-to-medium sized equipment,includingcontractors’andbuilders’toolsandequipment12.

The heavy equipment rental segment is relativelyfragmented,with a number of firms offering specializedproducts to serve the unique needs of the industry’sdiverseendmarketconsumers.However,UnitedRentalsremains a leader in heavy equipment rentals withapproximately 7.2%of segment revenues in 201611. Thesecondlargestplayerinheavyequipmentrentals,SunbeltRentals(privatelyheld),accountedforapproximately6.9%ofindustryrevenuesin201611.

The tool and equipment rental segment is highlyconcentrated, with the three largest companiesaccountingforanestimated80.1%ofindustryrevenues12.Outside of the industry’s largest players, operators arelargely small companies that serve local contractor andhousehold markets12. The three major players in theindustry are United Rentals, Sunbelt Rentals and HercHoldingsInc..(HRI).Thefollowingchartshowseachfirm’sshareofindustryrevenuesin2016:

Source:IBISWorld

In both of United Rentals’ primary rental segments,participants compete mainly on the price, availability,varietyandconditionof rentalequipment.These factorsdetermine the utilization rates for a company’s rentalequipment and, therefore, the return that firms canachieveoncapitalinvestment1.Thesemarketfactorsgivean advantage to larger, more established industryparticipant that benefit from pricing power, purchasingefficiencies,andfleetdiversification.

IndustryOutlook

The equipment rental industry is considered to bemature11,12. In general, customers have accepted thebenefits that come with renting equipment rather thanpurchasing equipment. For instance, firms recognize thebenefit of rented assets when economic conditionsworsen and otherwise capitalized equipment is not leftidle generating no return. Because of the industry’smaturity,themajorityofitsfuturegrowthwillbethroughexpansioninexistingmarkets.

Asamature industry, industryrevenuesareexpectedtogrowataratenearthattotalGDPgrowth.TheAmericanRental Association predicts that the equipment rentalindustrywillgrowatanannualrateof4.3%overthenextfiveyears13.Webelievethattheindustry’smostdominantplayers will be able to achievemore rapid growth withbetter pricing power, purchasing efficiency and fleetmanagementcapabilities.Wealsoexpectconsolidationtocontinueintheequipmentrentalindustriesasfirmsseekscale-relatedbenefitsaswellascustomerandgeographicdiversity.

PeerComparisons

Thetwolargestplayers intheequipmentrental industryare United Rentals and Sunbelt Rentals, a privatecompany. However, United Rentals also competes withotherpublicly-tradedcompetitors,includingHercHoldings(HRI)andH&EEquipmentServices (HEES).The followingchart shows importantoperatingandvaluation statisticsamongindustryparticipants:

URI Sunbelt HRI HEES2016Revenue($M)5,762 3,277 1,555 978MarketCap($M) 10,423 n/a 1,370 865OperatingMargin 24.56% n/a 4.95% 11.32%NetMargin 9.82% n/a -1.27% 3.80%DebttoTotalAssets 0.65 n/a 0.63 0.64P/E(TTM) 20.4 n/a 45.6 53.4ForwardP/E 12.8 n/a 77.7 24.6EV/EBITDA 6.73 n/a 7.52 5.48

Source:Bloomberg

UnitedRentals’largestpublicly-tradedcompetitorisHercHoldings,whichwas formed in July of 2016whenHertzGlobalHoldingssoughttoseparateitscarandequipmentrental segments. LikeUnitedRentals,Herc receivesover80%ofitsrevenuesfromequipmentrentals.ThefollowingchartshowsHerc’srevenuebysegmentin2016:

Source:HRI201610-K

HRIhas struggled toachieveoperationalefficiency in itsearlystagesasastand-aloneentity.HercHoldingshasalsostruggledbasedonitsdisproportionalrelianceonoilandgascustomersforrevenues. In2016,approximately17%of the company’s rental revenues were derived fromupstreamoilandgascustomers14.Ingeneral,thedemandforrentalequipmentfromoilandgascustomersrecededin2016duetoweaknessinoilmarkets14.However,thereismarketoptimismsurroundingHerc’searningsgrowthinthe future as evidenced by the company’s elevated P/Efigures. Many investors believe that the company wasneglected as a small part of Hertz’s business and couldflourishasastand-aloneentityinthefuture.However,webelieve that there is significant risk in this propositiongiventhecompany’srecentunderperformance.

H&E Equipment Services maintains a rental fleetcomposition and customer mix similar to those of theindustry’s largest players15. However, the company’smarginsfailtocomparewiththoseofUnitedRentalsduetoH&E’slargerexposuretolow-marginsegmentslikenewequipment sales. The following chart shows H&E’srevenuesbysegmentin2016:

Source:HEES201610-K

WebelievethatURI’shasanadvantageduetoitsexposureand dominance in the high-margin equipment rentalsegment.Moregenerally,webelievethatUnitedRentals’sizeandubiquityoffercompetitiveadvantagesthatcannotbe replicated by other industry participants. We alsobelieve that these advantages will allow URI todisproportionately benefit from industry growth in thefuture. This expectation seems to match marketsentiment,asURIshareshaveseenpriceappreciationatamuchfasterratethanthoseofcompetitors.Thefollowingchart shows theperformanceofpublicly-traded industrycompetitorsoverthepast12months:

87.0%

7.9% 4.4%

0.7%

HRI2016Revenue($1.55B)bySegment

EquipmentRentals SalesofRentalEquipment

SalesofNewEquipment ServiceandOtherRevenues

-50% -30% -10% 10% 30% 50% 70%

J A S O N D J F M A

12-MonthStockPerformance

URI HRI HEES

Source: Yahoofinance

Overall, we believe that United Rentals is in the bestposition tobenefit fromgrowth in theequipment rentalindustrymoving forward.Asmentioned,webelievethatthefirmstandstocaptureadisproportionateamountofindustry growth in the years to come. Cross-industrycomparisons also indicate the company’s significantindebtedness ismoreofan industrystandardthanaredflagandURI’sdiversecustomerbaselessensdownsideriskin theeventofdrawback fromoneof the industry’skeyendmarketconsumers.

ECONOMICOUTLOOK

InterestRates

Source:FRED

ThetargetFederalFundsRate,fromwhichothermarketratesarebased,iscurrentlybetween0.75%and1%16.The10-yearT-Bondyield is currently2.38%.Wepredict thatthefederalfundsratewillremainstagnantinthenextsixmonths.However,weexpect2-3ratehikesinthenexttwoyearsthatwillbringthefederalfundsratebetween1.5%and 1.75%. We expect the 10-year treasury yield toincreasetoroughly2.5%overthenextsixmonthsandtoroughly3%overthenexttwoyears.

RisinginterestratesaregenerallyunfavorableforUnitedRentals. Rising rates slow economic activity and affectdemand from customers in highly cyclical industries,including industrial and construction customers. Weexpectnear-termratehikeswillbegradualandcausenoimmediate impact on URI or its customers. Instead, webelieve that further ratehikes in thenext twoyearswillbegin to dampen industrial and constructionmarkets in2019andfurtherslowactivityintheseindustriesin2020.Webelievethatourrevenuegrowthestimatesfallinline

withouranalysisofURI’spositioninthecurrenteconomiccycle.

Unemployment

Source:FRED

Unemployment rates have been gradually falling since2012. Currently, the unemployment rate in the UnitedStates is 4.5%16. In the next six months, we expectunemploymentratestoremainbetween4.5%and4.6%.However,weexpectunemploymentrates toriseslightlytoroughly4.75%inthenexttwoyears.

Unemployment rates primarily affect demand fromresidential and commercial construction customers.Growing unemployment tends to hurt residentialconstruction firms as new housing starts and remodelactivityslows.Commercialconstructionfirmsarealsohurtby rising unemployment due to decreased demand forofficespace,lodgingandentertainment.Ourexpectationsfor modest growth in unemployment are unlikely tosignificantly hurt United Rentals in the next two years.However, we believe that the firm will experience theeffects of a slowing economy beginning in 2020. Ourgrowthforecastsintegrateourexpectationsforslowerendmarketdemandbeginningin2020.

IndustrialProductionIndex

The industrial production index is a key indicator of theoverallstrengthintheUSindustrialssector.ThefollowingchartshowstheUSIndustrialProductionIndexsince2007:

myf.red/g/diQF

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Jul2015 Sep2015 Nov2015 Jan2016 Mar2016 May2016 Jul2016 Sep2016 Nov2016 Jan2017 Mar2017

fred.stlouisfed.org

Source:BoardofGovernorsoftheFederalReserveSystem(US)

EffectiveFederalFundsRate

Percent

myf.red/g/diRl

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

Jan2012 Jul2012 Jan2013 Jul2013 Jan2014 Jul2014 Jan2015 Jul2015 Jan2016 Jul2016 Jan2017

fred.stlouisfed.org

Source:U.S.BureauofLaborStatistics

CivilianUnemploymentRate

Percent

Source:FRED

Industrial Production Index levels reflect the operatingenvironmentand strengthofUnitedRental’s customers,mainly within the firm’s industrial and other non-construction segment. As of February 1st, The IndustrialProduction Index remainsnear recordhighs.Webelievethatindustrialactivitywillremainstronginthenearterm,as the push for American manufacturing increase andderegulation and increasing commodity prices pushactivity in mining operations. This bodes well for URI’sindustrial andnon-construction revenues in theyears tocome.

OilPrices&RigCount

OilpricesimpactUnitedRentalsbecauserisingpricesandproduction levels incentivize rentals from oil and gascustomers. The following chart shows the price of WTICrudeOiloverthepastthreeyears:

Source:NASDAQ

Asdemonstratedby the chart above, theWTICrudeOilpriceiscurrently$50.60perbarrel17.Weexpectcrudeoilprices to rise to roughly$55 in thenext sixmonths and

appreciatetoroughly$60perbarrelinthenexttwoyears.Oilproductionlevelshavealreadybeguntogrowin2017,astheUSoilrigcounthasgrownfor11straightweeks18.ThefollowingchartshowstheupwardtrendinUSoilrigactivity:

Source:BakerHughes

Increasingoilpricesincentivizemoredrillingactivitythatwillleadtomoredemandforequipmentrentalsformoilandgascustomers.Thistrendhasalreadybeguninearly2017andwebelievethatmodestappreciationinoilpriceswill cause this trend to continue in the next two years.FurtherappreciationinoilpricesandrigcountswillbenefitUnited Rentals’ revenues derived from oil and gascustomersinthefuture.

INVESTMENTPOSITIVES

• Macroeconomictrendspointtocontinuedgrowthinindustrialproduction,commercialconstructionandresidentialconstruction

• URI is thebestpositionedfirm in theequipmentrental industry to capitalize on growing demandfromindustry’sendmarketcustomers

• We believe that URI has the potential to growrevenuesataCAGRof5.43%through2021

• NESacquisitionisexpectedtoproducebenefitsof$40 million in 2019 and $75 million annuallythereafter

INVESTMENTNEGATIVES

• ThemajorityofURI’scustomersoperateincyclicalindustries and an unexpected or earlier-than-expectedeconomicdownturnwouldseverelyhurtthedemandforrentalequipment

myf.red/g/dd3X

85.0

87.5

90.0

92.5

95.0

97.5

100.0

102.5

105.0

107.5

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

fred.stlouisfed.org

Source:BoardofGovernorsoftheFederalReserveSystem(US)

IndustrialProductionIndex

Index2012=100

• The company may struggle to service its $7.8billionofdebtintheeventofasevereeconomicdownturn

VALUATION

Revenueprojectionsarebasedongrowthexpectationsforthe end market industries served by United Rentals.Industrialandothernon-constructionrentalrevenuesareexpected to achieve organic growth of 5% in 2017 and2018, 4.5% in 2019, 4% in 2020 and 3 % in 2021.Commercialconstructionrentalrevenuesareprojectedtogrowby5%in2017and2018,4%in2019and2020and3% in2021.Residentialconstructionrental revenuesareprojectedtogrowatanorganicrateof6%in2017,7%in2018,5%in2019,4%in2020and3%in2021.Wepredictthatrentalequipmentsaleswillgrowatamodestrateof3%through2021.Salesofnewequipmentareprojectedtogrowatanannualrateof5%from2017-2020andat4%in2021.Contractor supply salesareexpected to remainconstant during the forecast horizon, while service andother revenuesareprojected togrowata rateof5% in2017 and 2018, 4% in 2019 and 2020 and 3% in 2021.These revenuegrowthassumptionsare largelybasedonexpectations for growing volume, not rental priceappreciation.Webelievethatourrevenueestimatesarereasonablegiventheeconomicconditionsfacingthefirm’scustomers and in light ofmanagement’s initial guidancefor2017.

COGSas apercentageof sales is projected to remainat2016 levels of 41.11% throughout the forecast horizon.Thisprojectionisbasedonhistoricallevelsandnomentionofsignificantcost-cuttingmeasuresbeingimplementedinthenearterm.

Our model integrates the acquisition of NES Rentalsbeginningin2017.WeprojectthattheNESacquisitionwillresult in a$40millionbenefit in2019anda$75millionannualbenefitthereafter.Thesebenefitsarereflectedininourmodelasaseparatelineitemtitled“NESAcquisitionBenefits”, which serves as an addition to EBITDA andNOPLAT.Theseexpectationsarebasedonmanagement’sguidance.Ourmodelalso includes restructuring costsof$20 billion in 2017. This estimate is based on therestructuring costs associated with the company’s pastacquisitions.

We expect that the firmwill invest in rental equipmentcapital expenditures at a rate of 21.62% of sales

throughouttheforecasthorizon.Thisexpectationisbasedonmanagement’sfocusontargetedanddisciplinedcapexas described in the company’s fourth quarter 2016earningscall.WeexpectthatURIwillinvestinnon-rentalcapitalexpendituresatanannualrateof1.61%ofsales.

Ourmodelprojectsthatthecompanywillrepurchase$643million of its shares annually throughout the forecasthorizon.Thisfigureisbasedonrecentrepurchaseactivityand based on the company’s outstanding sharerepurchase plan. In October 2016, managementsuspendeditscurrent$1billionrepurchaseplaninordertoevaluatepotentialacquisitionopportunities.However,managementhas indicatedthattherepurchaseprogramwill be completed now that the NES acquisition hasmaterialized.

URI’s cost of equitywas estimated based on the CAPM.The30-yearUSTreasuryBondwasusedasaproxyfortherisk-free rate. The 30-year T-bond yield currently sits at3.0%. The company’s 5-year weekly beta is 1.89, afterbeingadjustedforoutliers.Webelievethatthislong-termbetaestimateissuitablebecauseitcapturesasignificantportionofthecompany’sbusinesscycle.Ourmodelalsoincorporatesamarketriskpremiumof4.8%,whichreflectsourexpectationsofforward-lookingmarketconditions.

URI’spre-taxcostofdebtwasdeterminedbyexaminingtherateonthefirm’smostrecentlong-termbondissue.Thecompanyissueda20-yearbondon10/26/16atarateof5.5%.Thisratewasusedasthecompany’spretaxcostofdebt.

Ourmodelassumes3%terminalgrowthrateofNOPLAT.This growth rate was chosen based on long-run GDPgrowthexpectations.

OurDCFmodelresultsinatargetpriceof$124.50basedon these assumptions. We believe that our DCF modelgivesthebestestimateofthefairvalueofUnitedRentalsstock. Our dividend discount model generates a targetpriceof98.87.However,webelievethattheDDMIsapoorrepresentative of the company’s fair value because thefirmhasnotpaiddividendsinthepastanddoesnotintendto do so in the near future. Relative valuation yields atarget price of $169.72 based on United Rentals’ peergroup. We believe that relative valuation gives anunreliable target price because no other publicly tradedcompetitorsoperateonthesamescaleasUnitedRentals.Smallercompanieswerealsodisproportionatelyaffected

by weak demand from certain end-market industries in2016.

Sensitivity analysis shows the our target price is highlydependent on a number of key inputs, includingmarginassumptions, capex assumptions, and cost of equityassumptions.However,webelieve thatourassumptionsare reliable given the company’s past performance,management’sguidanceandthefirm’scurrentpositionintheeconomiccycle.

Our final target price of $124-126 is slightly below theconsensustargetpriceof$133.20.Someanalystspredictfaster growth in rental revenues and/or margin growththroughouttheforecasthorizon.However,webelievethatour growth and profitability estimates are appropriategivenourcompany,industryandeconomicexpectations.

KEYSTOMONITOR

Movingforward,thesuccessURIisheavilydependentonthe strength of its end market industries. The state ofhousing and commercial construction markets areparamounttotheongoingsuccessofUnitedRentalsandany downward trend in housing or commercialconstructionactivitywouldnegatively impactour thesis.Demand from these customers can also be affected bychanges in unemployment rates. In addition, overalleconomic activity should be monitored moving forwardbecause general economic strength is a key driver ofdemandfromnon-constructioncustomers,manyofwhichoperateinhighlycyclicalindustries.Lastly,politicaleventsthat affect demand for rental equipment, such as adefinitive infrastructure spending bill, should becontinuallyassessedbasedontheirlikelihood.

Itwill also be important tomonitorM&Aactivity in therental equipment industry over the next five years.Weexpectconsolidationtocontinueintherentalequipmentindustry. If URI is unable to find suitable acquisitionopportunities and/or other firms merge together, thecompany’s scale-related competitive advantagesmaybelost.

REFERENCES

1. UnitedRentals201610-K2. URIQ42016EarningsCall3. Bloomberg: “Infrastructure Stocks Climb as Trump

PledgestoSpend‘Big’”

4. Bloomberg: “Trump’s $1 Billion Plan May Buy LessMetalThanYouThink”

5. AmericanAssociationofCivilEngineers:www.asce.org6. Dodge Data & Analytics: 2017 Dodge Construction

OutlookReport7. IBISWorld:CommercialConstructionIndustryReport8. URIPressRelease:12/16/119. URI Press Release: United Rentals Completes

AcquisitionofNES(4/3/17)10. Bloomberg11. IBISWorld: Heavy Equipment Rental Industry

Report12. IBISWorld:ToolandEquipmentRentalIndustry13. The American Rental Association: “Five Year

Forecast for Equipment Rental Revenue Strengthens”(1/30/17)

14. HRI201610-K15. HEES201610-K16. FederalReserveEconomicData–FRED17. NASDAQWTICrudeOilPriceQuote18. BakerHughesOilRigCount19. YahooFinance20. BureauofEconomicAnalysis21. Associated Builders and Contractors: The

ConstructionBacklogIndicator(CBI)22. USCensusBureau:NewResidentialConstruction23. FactSet

IMPORTANTDISCLAIMER

HenryFundreportsarecreatedbystudentenrolledintheAppliedSecuritiesManagement(HenryFund)programatthe University of Iowa’s Tippie School of Management.Thesereportsareintendedtoprovidepotentialemployersandotherinterestedpartiesanexampleoftheanalyticalskills,investmentknowledge,andcommunicationabilitiesof Henry Fund students. Henry Fund analysts are notregistered investment advisors, brokers or officiallylicensed financial professionals. The investment opinioncontained in this report does not represent an offer orsolicitation to buy or sell any of the aforementionedsecurities. Unless otherwise noted, facts and figuresincludedinthisreportarefrompubliclyavailablesources.Thisreportisnotacompletecompilationofdata,anditsaccuracy is not guaranteed. From time to time, theUniversityofIowa,itsfaculty,staff,students,ortheHenryFund may hold a financial interest in the companiesmentionedinthisreport.

UnitedRentalsInc.RevenueDecomposition

FiscalYearsEndingDec.31 2014 2015 2016 2017E 2018E 2019E 2020E 2021ERevenuebysegmentEqupimentrentals 4,819 4,949 4,941 5,522 5,803 6,052 6,294 6,483

IndustrialandOtherNon- 2,458 2,524 2,520 2,815 2,956 3,089 3,213 3,309CommercialConstruction 2,169 2,227 2,223 2,484 2,608 2,713 2,821 2,906Residential 193 198 198 223 239 250 260 268

Salesofrentalequipment 544 538 496 544 560 577 594 612Salesofnewequipment 149 157 144 161 169 177 186 194Contractorsuppliessales 85 79 79 84 84 84 84 84Service&otherrevenues 88 94 102 114 120 124 129 133Totalrevenues 5,685 5,817 5,762 6,425 6,736 7,015 7,288 7,506

PercentageofTotalRevenuesEqupimentrentals 84.77% 85.08% 85.75% 85.95% 86.15% 86.28% 86.37% 86.37%

IndustrialandOtherNon- 43.23% 43.39% 43.73% 43.82% 43.89% 44.04% 44.08% 44.09%CommercialConstruction 38.15% 38.29% 38.59% 38.66% 38.73% 38.67% 38.71% 38.71%Residential 3.39% 3.40% 3.43% 3.47% 3.54% 3.57% 3.57% 3.57%

Salesofrentalequipment 9.57% 9.25% 8.61% 8.46% 8.31% 8.22% 8.15% 8.15%Salesofnewequipment 2.62% 2.70% 2.50% 2.50% 2.51% 2.53% 2.56% 2.58%Contractorsuppliessales 1.50% 1.36% 1.37% 1.31% 1.25% 1.20% 1.15% 1.12%Service&otherrevenues 1.55% 1.62% 1.77% 1.77% 1.78% 1.77% 1.78% 1.78%

PercentageofRentalRevenuesIndustrialandOtherNon- 51.00% 51.00% 51.00% 50.98% 50.94% 51.04% 51.04% 51.04%CommercialConstruction 45.00% 45.00% 45.00% 44.98% 44.95% 44.82% 44.82% 44.82%Residential 4.00% 4.00% 4.00% 4.04% 4.11% 4.14% 4.14% 4.14%

YoYGrowthEqupimentrentals 14.85% 2.70% -0.16% 11.77% 5.08% 4.30% 4.00% 3.00%

IndustrialandOtherNon- 17.14% 2.70% -0.16% 11.72% 5.00% 4.50% 4.00% 3.00%CommercialConstruction 12.35% 2.70% -0.16% 11.72% 5.00% 4.00% 4.00% 3.00%Residential 14.85% 2.70% -0.16% 12.79% 7.00% 5.00% 4.00% 3.00%

Salesofrentalequipment 11.02% -1.10% -7.81% 9.60% 3.00% 3.00% 3.00% 3.00%Salesofnewequipment 43.27% 5.37% -8.28% 11.72% 5.00% 5.00% 5.00% 4.00%Contractorsuppliessales -2.30% -7.06% 0.00% 6.40% 0.00% 0.00% 0.00% 0.00%Service&otherrevenues 12.82% 6.82% 8.51% 11.72% 5.00% 4.00% 4.00% 3.00%Totalrevenues 14.73% 2.32% -0.95% 11.50% 4.83% 4.15% 3.90% 2.99%

UnitedRentalsInc.IncomeStatement

FiscalYearsEndingDec.31 2014 2015 2016 2017E 2018E 2019E 2020E 2021E

Sales 5,685 5,817 5,762 6,425 6,736 7,015 7,288 7,506

COGSexcludingdepreciation 2,332 2,361 2,369 2,642 2,769 2,884 2,996 3,086

Depreciationofrentalequipment 921 976 990 1,084 1,134 1,187 1,242 1,297

Grossprofit(loss) 2,432 2,480 2,403 2,699 2,832 2,943 3,050 3,123

Selling,general&administrativeexpenses 758 714 719 802 840 875 909 937

Mergerrelatedcosts(benefits) 11 (26) 0 20 0 (40) (75) (75)

Restructuringcharge (1) 6 14 0 0 0 0 0

Non-rentaldepreciation&amortization 273 268 255 262 265 269 273 277

Operatingincome(loss) 1,391 1,518 1,415 1,615 1,727 1,839 1,943 1,984

Interestexpense,net 555 567 511 456 479 488 498 507

Otherincome(expense),net 14 12 5 12 12 13 13 13

Income(loss)beforeprovision(benefit)forincometaxes 850 963 909 1,171 1,260 1,363 1,458 1,491

Provision(benefit)forincometaxes(benefit) 310 378 343 430 463 501 536 548

Netincome(loss) 540 585 566 741 797 862 922 943

Weightedaveragesharesoutstanding-basic 97.489 95.17 87.217 81.684 76.822 72.374 68.284 64.474

Yearendsharesoutstanding 97.878 91.776 84.222 79.145 74.499 70.248 66.321 62.628

BasicEPS $5.54 $6.14 $6.49 $9.36 $10.69 $12.27 $13.90 $15.05

Dividendspershare $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

UnitedRentalsInc.BalanceSheet

FiscalYearsEndingDec.31 2014 2015 2016 2017E 2018E 2019E 2020E 2021EAssetsCash & Short-Term Investments 158 179 312 765 1,008 1,309 1,667 2,037Accounts Receivable 940 930 920 1,027 1,076 1,121 1,164 1,199Inventories 78 69 68 76 80 83 86 89Prepaid Expenses and Other Current Assets 370 116 61 98 103 107 111 115Total Current Assets 1,546 1,294 1,361 1,965 2,267 2,620 3,029 3,439 Rental Equipment, Net 6,008 6,186 6,189 6,891 7,213 7,542 7,877 8,203Property and Equipment, Net 438 445 430 462 469 476 484 465Goodwill 3,272 3,243 3,260 3,666 3,666 3,666 3,666 3,666Other Intangible Assets 1,106 905 742 627 464 301 138 0Other Long-Term Assets 97 10 6 9 9 10 10 10Total Assets 12,467 12,083 11,988 13,619 14,087 14,615 15,203 15,784Liabilities & Shareholders' EquityST Debt & Curr. Portion LT Debt 618 607 597 668 701 730 758 781Accounts Payable 285 271 243 285 299 311 323 333Income Tax Payable 35 22 23 27 29 31 34 34Other Current Liabilities 540 333 321 363 380 396 412 424Total Current Liabilities 1,478 1,233 1,184 1,343 1,409 1,469 1,527 1,572 Long-Term Debt 7,434 7,555 7,193 8,039 8,179 8,321 8,465 8,597Provision for Risks & Charges 0 0 0 0 0 0 0 0Deferred Tax Liabilities 1,692 1,765 1,896 2,119 2,221 2,323 2,425 2,527Other Long-Term Liabilities 65 54 67 67 70 73 76 78Total Liabilities 10,669 10,607 10,340 11,569 11,880 12,186 12,493 12,775 Temporary Equity 2 0 0 0 0 0 0 0Common Stock 2,169 2,198 2,289 2,595 2,597 2,600 2,602 2,602Retained Earnings 503 1,088 1,654 2,395 3,191 4,054 4,976 5,918Treasury Stock (802) (1,560) (2,077) (2,720) (3,364) (4,007) (4,650) (5,294)Accumulated Other Comprehensive Income (Loss)(74) (250) (218) (218) (218) (218) (218) (218)Total Stockholders' Equity 1,796 1,476 1,648 2,051 2,207 2,429 2,710 3,009Total Equity 1,798 1,476 1,648 2,051 2,207 2,429 2,710 3,009Total Liabilities & Shareholders' Equity 12,467 12,083 11,988 13,619 14,087 14,615 15,203 15,784

UnitedRentalsInc.CashFlowStatement

FiscalYearsEndingDec.31 2014 2015 2016Operating ActivitiesNet income (loss) 540 585 566Depreciation & amortization 1,194 1,244 1,245Amortization of deferred financing costs & original issue discounts 17 10 9Loss (gain) on sales of rental equipment (229) (227) (204)Loss (gain) on sales of non-rental equipment (11) (8) (4)Loss (gain) on sale of software subsidiary - - -Stock compensation expense, net 74 49 45Merger related costs 11 (26) -Restructuring charge (1) 6 14Loss (gain) on extinguishment of debt securities 80 - -Loss on repurchase/redemption of debt securities & amendment of ABL facility - 123 101Loss (gain) on retirement of subordinated convertible debentures - - -Excess tax benefits from share-based payment arrangements - (5) (58)Deferred taxes 261 336 123Accounts receivable (101) (11) 15Inventory 11 8 1Prepaid expenses & other assets (52) (38) 77Accounts payable (23) (8) (29)Accrued expenses & other liabilities 30 (43) 52Net cash flows from operating activities 1,801 1,995 1,953Purchases of rental equipment (1,701) (1,534) (1,246)Purchases of non-rental equipment (120) (102) (93)Proceeds from sales of rental equipment 544 538 496Proceeds from sales of non-rental equipment 33 17 14Purchases of other companies, net of cash acquired (756) (86) (28)Purchases of investments - (3) (2)Proceeds from sale of software subsidiary - - -Net cash flows from investing activities (2,000) (1,170) (859)Proceeds from debt 7,070 8,566 8,752Payments on debt (6,283) (8,482) (9,223)Payment of contingent consideration - (52) -Payments of financing costs (22) (27) (24)Proceeds from the exercise of common stock options 2 1 1Shares repurchased & retired - - -Common stock repurchased (613) (789) (528)Cash received (paid) in connection with the 4 percent convertible senior notes & related hedge, net 42 3 -Excess tax benefits from share-based payment arrangements - 5 58Net cash flows from financing activities 196 (775) (964)Effect of foreign exchange rates (14) (29) 3Net increase (decrease) in cash & cash equivalents (17) 21 133

UnitedRentalsInc.CashFlowStatement

FiscalYearsEndingDec.31 2017E 2018E 2019E 2020E 2021ENet Income 741 797 862 922 943Depreciation & Amortization 1,346 1,399 1,456 1,515 1,574Accounts Receivable (107) (50) (45) (44) (35)Inventories (8) (4) (3) (3) (3)Prepaid Expenses and Other Current Assets (37) (5) (4) (4) (3)Accounts Payable 42 14 12 12 10Income Tax Payable 4 2 2 2 1Other Current Liabilities 42 18 16 15 12Change in Deferred Tax Liabilities 223 102 102 102 102Net Operating Cash Flow 2,247 2,273 2,399 2,517 2,601

Capital Expenditures (1,964) (1,565) (1,630) (1,694) (1,744)Goodwill (406) 0 0 0 0Other LT Assets (3) (0) (0) (0) (0)Net Investing Cash Flow (2,373) (1,566) (1,631) (1,694) (1,745)

ST Debt & Curr. Portion LT Debt 71 32 29 28 23Long-Term Debt 846 140 142 144 132Other LT Liabilities 0 3 3 3 2ESOP Exercises 306 3 3 2 0Purchase of Treasury Stock (643) (643) (643) (643) (643)Other Comprehensive Income 0 0 0 0 0Net Financing Cash Flow 579 (464) (467) (466) (486)

Net Change in Cash 453 243 301 357 370

Beginning Year Cash 312 765 1,008 1,309 1,667Ending Year Cash 765 1,008 1,309 1,667 2,037

UnitedRentalsInc.CommonSizeIncomeStatement


Sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

COGSexcludingdepreciation 41.02% 40.59% 41.11% 41.11% 41.11% 41.11% 41.11% 41.11%

Depreciationofrentalequipment 16.20% 16.78% 17.18% 16.87% 16.84% 16.93% 17.04% 17.28%

Grossprofit(loss) 42.78% 42.63% 41.70% 42.01% 42.04% 41.96% 41.85% 41.61%

Selling,general&administrativeexpenses 13.33% 12.27% 12.48% 12.48% 12.48% 12.48% 12.48% 12.48%

Mergerrelatedcosts 0.19% -0.45% 0.00% 0.31% 0.00% -0.57% -1.03% -1.00%

Restructuringcharge -0.02% 0.10% 0.24% 0.00% 0.00% 0.00% 0.00% 0.00%

Non-rentaldepreciation&amortization 4.80% 4.61% 4.43% 4.08% 3.93% 3.83% 3.75% 3.70%

Operatingincome(loss) 24.47% 26.10% 24.56% 25.14% 25.64% 26.22% 26.65% 26.44%

Interestexpense,net 9.76% 9.75% 8.87% 7.10% 7.11% 6.96% 6.83% 6.76%

Otherincome(expense),net 0.25% 0.21% 0.09% 0.18% 0.18% 0.18% 0.18% 0.18%

Income(loss)beforeprovision(benefit)forincometaxes 14.95% 16.55% 15.78% 18.23% 18.71% 19.44% 20.00% 19.86%

Provision(benefit)forincometaxes(benefit) 5.45% 6.50% 5.95% 6.70% 6.88% 7.15% 7.35% 7.30%

Netincome(loss) 9.50% 10.06% 9.82% 11.53% 11.83% 12.29% 12.65% 12.56%

UnitedRentalsInc.CommonSizeBalanceSheet

FiscalYearsEndingDec.31 2014 2015 2016 2017E 2018E 2019E 2020E 2021EAssetsCash & Short-Term Investments 2.78% 3.08% 5.41% 11.90% 14.96% 18.67% 22.87% 27.13%Accounts Receivable 16.53% 15.99% 15.97% 15.98% 15.98% 15.98% 15.98% 15.98%Inventories 1.37% 1.19% 1.18% 1.18% 1.18% 1.18% 1.18% 1.18%Prepaid Expenses and Other Current Assets 6.51% 1.99% 1.06% 1.53% 1.53% 1.53% 1.53% 1.53%Total Current Assets 27.19% 22.25% 23.62% 30.59% 33.65% 37.35% 41.56% 45.82% Rental Equipment, Net 105.68% 106.34% 107.41% 107.25% 107.09% 107.52% 108.08% 109.29%Property and Equipment, Net 7.70% 7.65% 7.46% 7.19% 6.96% 6.79% 6.64% 6.20%Goodwill 57.55% 55.75% 56.58% 57.06% 54.43% 52.26% 50.30% 48.84%Other Intangible Assets 19.45% 15.56% 12.88% 9.75% 6.88% 4.28% 1.89% 0.00%Other Long-Term Assets 1.71% 0.17% 0.10% 0.14% 0.14% 0.14% 0.14% 0.14%Total Assets 219.30% 207.72% 208.05% 211.98% 209.15% 208.35% 208.60% 210.29%Liabilities & Shareholders' EquityST Debt & Curr. Portion LT Debt 10.87% 10.43% 10.36% 10.40% 10.40% 10.40% 10.40% 10.40%Accounts Payable 5.01% 4.66% 4.22% 4.44% 4.44% 4.44% 4.44% 4.44%Income Tax Payable 0.62% 0.38% 0.40% 0.42% 0.43% 0.45% 0.46% 0.46%Other Current Liabilities 9.50% 5.72% 5.57% 5.65% 5.65% 5.65% 5.65% 5.65%Total Current Liabilities 26.00% 21.20% 20.55% 20.91% 20.92% 20.94% 20.95% 20.95% Long-Term Debt 130.77% 129.88% 124.84% 125.12% 121.43% 118.62% 116.15% 114.53%Provision for Risks & Charges 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Deferred Tax Liabilities 29.76% 30.34% 32.91% 32.99% 32.98% 33.12% 33.28% 33.67%Other Long-Term Liabilities 1.14% 0.93% 1.16% 1.05% 1.05% 1.05% 1.05% 1.05%Total Liabilities 187.67% 182.34% 179.45% 180.06% 176.38% 173.72% 171.42% 170.20% Temporary Equity 0.04% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Common Stock 38.15% 37.79% 39.73% 40.38% 38.56% 37.07% 35.71% 34.67%Retained Earnings 8.85% 18.70% 28.71% 37.27% 47.38% 57.79% 68.27% 78.84%Treasury Stock -14.11% -26.82% -36.05% -42.34% -49.94% -57.12% -63.81% -70.53%Accumulated Other Comprehensive Income (Loss) -1.30% -4.30% -3.78% -3.39% -3.24% -3.11% -2.99% -2.90%Total Stockholders' Equity 31.59% 25.37% 28.60% 31.92% 32.77% 34.63% 37.18% 40.09%Total Equity 31.63% 25.37% 28.60% 31.92% 32.77% 34.63% 37.18% 40.09%Total Liabilities & Shareholders' Equity 219.30% 207.72% 208.05% 211.98% 209.15% 208.35% 208.60% 210.29%

UnitedRentalsInc.WeightedAverageCostofCapital(WACC)Estimation

30-YearTreasury 3.00%MarginalTaxRate 36.76%Beta 1.89EquityRiskPremium 4.80%CostofEquity 12.07%PretaxCostofDebt 5.50%SharesOutstanding 84,222,000SharePrice $123.41MarketValueofEquity $10,393,837,020

ST Debt & Curr. Portion LT Debt 597,000,000Long-Term Debt 7,193,000,000PVofOperatingLeases 410,511,656MarketValueofDebt 8,200,511,656MarketValueofFirm 18,594,348,676Equity/TotalMarketValue 55.90%Debt/TotalMarketValue 44.10%

WACC 8.28%

UnitedRentalsInc.DiscountedCashFlow(DCF)andEconomicProfit(EP)ValuationModels

KeyInputs:CVGrowth 3.00%CVROIC 14.33%WACC 8.28%CostofEquity 12.07%

FiscalYearsEndingDec.31 2017E 2018E 2019E 2020E 2021E

DCFModelNOPLAT 1,255 1,212 1,298 1,377 1,404BeginningIC 8,355 9,130 9,349 9,573 9,802EndingIC 9,130 9,349 9,573 9,802 10,015ChangeinIC 775 219 224 229 213ROIC 15.02% 13.27% 13.89% 14.39% 14.33%FCF 479 992 1,074 1,148 1,191TerminalValue 21,022PVofFCF 443 846 846 835 15,292

ValueofOperatingAssets 18,263

Plus ExcessCash 197Minus TotalDebt 7,790Minus OtherLong-TermLiabilities 67Minus PVofOperatingLeases 411Minus PVofEmployeeStockOptions 54ValueofEquity 10,138SharesOutstanding 84.22IntrinsicValue(12/31/16) $120.37IntrinsicValueToday $124.50

EPModelNOPLAT 1255 1212 1298 1377 1404BeginningIC 8355 9130 9349 9573 9802ROIC-WACC 6.73% 4.99% 5.61% 6.11% 6.05%EP 563 456 524 584 593TerminalValue 11220PVofEP 520 389 413 425 8162

PVofEconomicProfit 9,908

BeginningIC 8,355 ValueofOperatingAssets 18,263

Plus ExcessCash 197Minus TotalDebt 7,790Minus OtherLong-TermLiabilities 67Minus PVofOperatingLeases 411Minus PVofEmployeeStockOptions 54ValueofEquity 10,138SharesOutstandiing 84.22IntrinsicValue(12/31/16) $120.37IntrinsicValueToday $124.50

UnitedRentalsInc.DividendDiscountModel(DDM)orFundamentalP/EValuationModel

FiscalYearsEndingDec.31 2017E 2018E 2019E 2020E 2021E

EPS 9.36$ 10.69$ 12.27$ 13.90$ 15.05$

KeyAssumptionsCVgrowth 3.00%CVROE 32.97%CostofEquity 12.07%

FutureCashFlowsP/EMultiple(CVYear) 10.02EPS(CVYear) 15.05$ FutureStockPrice 150.81$ DividendsPerShare 13.68$ FutureCashFlows

DiscountedCashFlows 95.60$

IntrinsicValue(12/31/16) 95.60$ IntrinsicValueToday 98.87$

UnitedRentalsInc.RelativeValuationModels

EPS EPS Est.5yrTicker Company Price 2017E 2018E P/E17 P/E18 EPSgr. PEG17 PEG18HRI HercHoldingsInc. $48.89 $0.55 $1.34 89.1 36.5 46.0 1.94 0.79 HEES H&EEquipmentServices $24.52 $0.99 $1.15 24.8 21.3 11.4 2.17 1.86 NEFF NeffCorporation $19.45 $1.69 $2.09 11.5 9.3 11.8 0.97 0.79

Average 18.1 15.3 1.6 1.3

URI UnitedRentalsInc. $123.41 $9.36 $10.69 13.2 11.5 10.8 1.2 1.1

ImpliedValue:RelativeP/E(EPS16) $169.72RelativeP/E(EPS17) 163.78$ PEGRatio(EPS16) 159.12$ PEGRatio(EPS17) 153.62$

UnitedRentalsInc.KeyManagementRatios


LiquidityRatiosCurrentRatio(CA/CL) 1.05 1.05 1.15 1.46 1.61 1.78 1.98 2.19QuickRatio(Cash&Receivables/CL) 0.74 0.90 1.04 1.33 1.48 1.65 1.85 2.06CashRatio(Cash/CL) 0.11 0.15 0.26 0.57 0.72 0.89 1.09 1.30OperatingCashFlowRatio(OCF/CL) 1.22 1.62 1.65 1.67 1.61 1.63 1.65 1.65

ActivityorAsset-ManagementRatiosReceivablesTurnover(Sales/AvgReceivables) 6.52 6.22 6.23 6.60 6.41 6.39 6.38 6.35InventoryTurnover(Sales/AvgInventory) 76.82 79.14 84.12 89.22 86.51 86.24 86.13 85.76FixedAssetTurnover(Sales/AvgNetPP&E) 0.93 0.89 0.87 0.92 0.90 0.89 0.89 0.88TotalAssetTurnover(Sales/AvgTotalAssets) 0.48 0.47 0.48 0.50 0.49 0.49 0.49 0.48

FinancialLeverageRatiosDebttoTotalAssets(ST&LTDebt/TotalAssets) 0.65 0.68 0.65 0.64 0.63 0.62 0.61 0.59DebttoEquity(ST&LTDebt/TotalEquity) 4.48 5.53 4.73 4.25 4.02 3.73 3.40 3.12InterestCoverage(EBIT/InterestExpense) 2.51 2.68 2.77 3.54 3.61 3.77 3.90 3.91

ProfitabilityRatiosGrossMargin(GrossIncome/Sales) 42.78% 42.63% 41.70% 42.01% 42.04% 41.96% 41.85% 41.61%OperatingMargin(OperatingIncome/Sales) 24.47% 26.10% 24.56% 25.14% 25.64% 26.22% 26.65% 26.44%NetProfitMargin(NI/Sales) 9.50% 10.06% 9.82% 11.53% 11.83% 12.29% 12.65% 12.56%ROE(NI/AvgEquity) 29.62% 35.74% 36.24% 40.04% 37.43% 37.20% 35.88% 32.97%ROA(NI/AvgAssets) 4.56% 4.77% 4.70% 5.78% 5.75% 6.01% 6.18% 6.08%

UnitedRentalsInc.NESAcquisitionModeling

PurchasePrice 965NESSales(2016) 369

IncomeStatementURI NES Combined

FiscalYearsEndingDec.31 2016 2016 2016Sales 5,762 369 6,131COGSexcludingdepreciation 2,369 152 2,521Depreciationofrentalequipment 990 65 1,055Grossprofit(loss) 2,403 152 2,555Selling,general&administrativeexpenses 719 46 765Mergerrelatedcosts(benefits) 0 0 0Restructuringcharge 14 0 14Non-rentaldepreciation&amortization 255 16 271Operatingincome(loss) 1,415 90 1,505Interestexpense,net 511 27 538Otherincome(expense),net 5 1 6Income(loss)beforeprovision(benefit)forincometaxes 909 63 972Provision(benefit)forincometaxes(benefit) 343 23 366Netincome(loss) 566 40 606

Weightedaveragesharesoutstanding-basic 87 87 87Yearendsharesoutstanding 84 84 84BasicEPS 6 0 7Dividendspershare 0 0 0

BalanceSheetURI NES Combined

FiscalYearsEndingDec.31 2016 2016 2016AssetsCash & Short-Term Investments 312 20 332Accounts Receivable 920 59 979Inventories 68 4 72Prepaid Expenses and Other Current Assets 61 4 65Total Current Assets 1,361 87 1,448 Rental Equipment, Net 6,189 396 6,585Property and Equipment, Net 430 28 458Goodwill 3,260 406 3,666Other Intangible Assets 742 48 790Other Long-Term Assets 6 0 6Total Assets 11,988 965 12,953Liabilities & Shareholders' EquityST Debt & Curr. Portion LT Debt 597 38 635Accounts Payable 243 16 259Income Tax Payable 23 1 24Other Current Liabilities 321 21 342Total Current Liabilities 1,184 76 1,260 Long-Term Debt 7,193 461 7,654Provision for Risks & Charges 0 0 0Deferred Tax Liabilities 1,896 121 2,017Other Long-Term Liabilities 67 4 71Total Liabilities 10,340 662 11,002 Temporary Equity 0 0 0Common Stock 2,289 303 2,592Retained Earnings 1,654 1,654Treasury Stock -2,077 -2,077Accumulated Other Comprehensive Income (Loss) -218 -218Total Stockholders' Equity 1,648 106 1,754Total Equity 1,648 106 1,754Total Liabilities & Shareholders' Equity 11,988 965 12,953

RevenueDecompositionEqupimentrentals 4,941 316 5,257

IndustrialandOtherNon-Construciton 2,520 161 2,681CommercialConstruction 2,223 142 2,366Residential 198 13 210

Salesofrentalequipment 496 32 528Salesofnewequipment 144 9 153Contractorsuppliessales 79 5 84Service&otherrevenues 102 7 109TotalRevenues 5,762 369 6,131

SG&A as % of Sales Pretax Cost of Debt124.50 11.00% 12.00% 12.48% 13.00% 14.00% 124.50 4.50% 5.00% 5.50% 6.00% 6.50%

COGS as % of Sales39.00% 159.72 149.92 145.23 140.11 130.31 Cost of Equity 10.00% 209.04 198.08 187.85 178.30 169.3540.00% 149.92 140.11 135.42 130.31 120.51 11.00% 169.73 161.32 153.40 145.94 138.9141.11% 138.99 129.19 124.50 119.39 109.58 12.07% 137.28 130.72 124.50 118.61 113.0142.00% 130.31 120.51 115.82 110.70 100.90 13.00% 114.83 109.41 104.26 99.35 94.6643.00% 120.51 110.70 106.02 100.90 91.10 14.00% 94.87 90.38 86.09 81.99 78.06

Risk Premium CV ROIC124.50 4.00% 4.50% 4.80% 5.00% 5.50% 124.50 12.00% 13.00% 14.33% 15.00% 16.00%

Beta 1.50 233.03 197.97 180.24 169.54 146.03 CV Growth 2.00% 103.14 105.70 108.55 109.80 111.461.75 187.85 157.25 141.80 132.48 111.99 2.50% 108.49 111.97 115.83 117.53 119.791.89 167.50 138.93 124.50 115.80 96.69 3.00% 114.85 119.42 124.50 126.73 129.702.00 153.40 126.24 112.53 104.26 86.09 3.50% 122.55 128.43 134.98 137.85 141.682.25 126.24 101.80 89.47 82.03 65.70 4.00% 132.04 139.55 147.91 151.57 156.46

124.50 124.50CapEx Rate 20.00% 136.81 WACC 7.00% 197.98

22.00% 121.66 8.00% 137.4321.62% 124.50 8.28% 124.5024.00% 106.51 9.00% 97.0726.00% 91.35 10.00% 68.25

united rentals, inc. (uri) april 7, 2017 · reduction benefits $40 million beginning in 2019 and...

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