Jefferies Sees Equipment Rental Operators Soar as Potential Infrastructure Ramp Eases Fears - (URI) (HRI) (NEFF)

The Trump victory on November 8th has raised expectations of a possible ramp in infrastructure spending, providing a multi-year boost to US construction and equipment rental. As such, rental operators have jumped 20%-49% since the election, despite the risk of delays or dilution of campaign rhetoric becoming policy.

Jeffereis analyst Justin Jordan commented, "Hopes of increased infrastructure spend have seen rental operators soar 20%-49% since the 8 November Trump victory." Jordan continued, "Despite mixed macro, we remain selectively positive for 2017. We view URI (NYSE: URI) & AHT as best placed to benefit from an infrastructure boost, hence reaffirm Buys on both. We initiate HRI (NYSE: HRI) at Hold. Post recent gains, we downgrade NEFF (NASDAQ: NEFF) from Buy to Hold."

There are fears that the US rental macro is mixed, with declining industrial production and construction spend. However, Jefferies believes that the potential boost to infrastructure spending may add to the business cycle for both construction and equipment rental companies.

Jordan commented in a report, "With their national coverage and broad equipment fleets, we see rental leaders United Rentals and Sunbelt Rentals (Ashtead) best placed for any infrastructure boost. Additionally, URI & AHT’s lower leverage than peers gives flexibility for continued buybacks, selective M&A and organic expansion (particularly specialty rental)."

In August 2016, Trump indicated he would "at least double" the Clinton proposal and in late October called for $1 trillion over a 10-year period for infrastructure work. The new plan would “leverage public-private partnerships”, encourage private investment through tax incentives, and be “revenue neutral”. Given time for proposals to work through Congress, analysts expect little boost to the US construction and rental industry until 2018 at earliest. However, if fully implemented, increased infrastructure spending could boost US construction and rental industry revenues by up to 9% p.a.

In addition to initiating HRI at Hold and downgrading NEFF, the firm raised its price target on URI to $115 and on Ashtead Group (AHT LN) to 1,700p.

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