Stock Analysis on Net
Stock Analysis on Net

United Rentals Inc. (NYSE:URI)

This company has been moved to the archive! The financial data has not been updated since January 25, 2023.

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

United Rentals Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

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Year Value FCFFt or Terminal value (TVt) Calculation Present value at 17.11%
01 FCFF0 1,990
1 FCFF1 2,153 = 1,990 × (1 + 8.22%) 1,839
2 FCFF2 2,347 = 2,153 × (1 + 8.98%) 1,711
3 FCFF3 2,576 = 2,347 × (1 + 9.75%) 1,604
4 FCFF4 2,847 = 2,576 × (1 + 10.52%) 1,514
5 FCFF5 3,168 = 2,847 × (1 + 11.28%) 1,438
5 Terminal value (TV5) 60,527 = 3,168 × (1 + 11.28%) ÷ (17.11% – 11.28%) 27,481
Intrinsic value of United Rentals Inc. capital 35,587
Less: Debt (fair value) 10,801
Intrinsic value of United Rentals Inc. common stock 24,786
 
Intrinsic value of United Rentals Inc. common stock (per share) $357.36
Current share price $392.48

Based on: 10-K (reporting date: 2022-12-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

United Rentals Inc., cost of capital

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Value1 Weight Required rate of return2 Calculation
Equity (fair value) 27,222 0.72 22.39%
Debt (fair value) 10,801 0.28 3.79% = 4.98% × (1 – 23.97%)

Based on: 10-K (reporting date: 2022-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 69,359,591 × $392.48
= $27,222,252,275.68

   Debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (24.88% + 24.92% + 21.86% + 22.46% + 25.75%) ÷ 5
= 23.97%

WACC = 17.11%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

United Rentals Inc., PRAT model

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Average Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018
Selected Financial Data (US$ in millions)
Interest expense, net 445 424 669 648 481
Net income 2,105 1,386 890 1,174 1,096
 
Effective income tax rate (EITR)1 24.88% 24.92% 21.86% 22.46% 25.75%
 
Interest expense, net, after tax2 334 318 523 502 357
Interest expense (after tax) and dividends 334 318 523 502 357
 
EBIT(1 – EITR)3 2,439 1,704 1,413 1,676 1,453
 
Short-term debt and current maturities of long-term debt 161 906 704 997 903
Long-term debt, excluding current maturities 11,209 8,779 8,978 10,431 10,844
Stockholders’ equity 7,062 5,991 4,545 3,830 3,403
Total capital 18,432 15,676 14,227 15,258 15,150
Financial Ratios
Retention rate (RR)4 0.86 0.81 0.63 0.70 0.75
Return on invested capital (ROIC)5 13.23% 10.87% 9.93% 10.99% 9.59%
Averages
RR 0.75
ROIC 10.92%
 
FCFF growth rate (g)6 8.22%

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

1 See details »

2022 Calculations

2 Interest expense, net, after tax = Interest expense, net × (1 – EITR)
= 445 × (1 – 24.88%)
= 334

3 EBIT(1 – EITR) = Net income + Interest expense, net, after tax
= 2,105 + 334
= 2,439

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [2,439 – 334] ÷ 2,439
= 0.86

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 2,439 ÷ 18,432
= 13.23%

6 g = RR × ROIC
= 0.75 × 10.92%
= 8.22%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (38,023 × 17.11% – 1,990) ÷ (38,023 + 1,990)
= 11.28%

where:

Total capital, fair value0 = current fair value of United Rentals Inc. debt and equity (US$ in millions)
FCFF0 = the last year United Rentals Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of United Rentals Inc. capital

FCFF growth rate (g) forecast

United Rentals Inc., H-model

Microsoft Excel
Year Value gt
1 g1 8.22%
2 g2 8.98%
3 g3 9.75%
4 g4 10.52%
5 and thereafter g5 11.28%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 8.22% + (11.28% – 8.22%) × (2 – 1) ÷ (5 – 1)
= 8.98%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 8.22% + (11.28% – 8.22%) × (3 – 1) ÷ (5 – 1)
= 9.75%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 8.22% + (11.28% – 8.22%) × (4 – 1) ÷ (5 – 1)
= 10.52%