Estimating United Rentals' Fair Value at $754 Per Share

A recent analysis estimates the intrinsic value of United Rentals Inc. (NYSE: URI) at $754 per share, 10% higher than the current analyst price target of $684.

The estimate is based on a Discounted Cash Flow (DCF) model that takes into account the company's expected future cash flows and discounts them to their present value.

The DCF analysis uses a two-stage model, with the first stage assuming higher growth that levels off towards the terminal value in the second stage. "The present value of the 10-year cash flows is estimated to be $20 billion, and the terminal value is calculated using the Gordon Growth formula," according to the analysis.

Based on the DCF model, United Rentals' total equity value is estimated at $51 billion, implying a 17% discount to the current share price of $629. However, the analysis notes that the DCF model has limitations and that the most important inputs, the discount rate and actual cash flows, can be subjective.

Why this matters: The DCF-based fair value estimate for United Rentals provides investors with an alternative perspective on the company's valuation beyond analyst price targets. It highlights the potential upside in the stock if the company can deliver on its projected cash flows and growth trajectory.

The analysis emphasizes that while the DCF model can be a useful tool for estimating intrinsic value, investors should be aware of its limitations and the subjectivity involved in key inputs like the discount rate and cash flow projections. As with any valuation method, the DCF estimate should be considered alongside other factors such as the company's financial health, market position, and operational efficiency when making investment decisions.

Key Takeaways

• DCF analysis estimates United Rentals' fair value at $754/share, 10% above current target.
• DCF model uses 10-year cash flows and terminal value to calculate $51B total equity value.
• Estimated value implies 17% discount to current $629 share price.
• DCF model has limitations, with discount rate and cash flows as subjective inputs.
• DCF estimate should be considered alongside other factors for investment decisions.