S&P Global upgrades United Rentals to investment grade on leverage cushion

S&P Global Ratings has upgraded United Rentals Inc's credit rating from BB+ to BBB-, labeling it as investment-grade. This move is due to the company's disciplined financial policy, consistent cash flow generation, and reduced leverage. The agency has also raised the rating on the company's unsecured debt to BBB- while confirming its BBB- rating on senior debt.

The outlook for United Rentals has been set to stable, anticipating steady performance in operating metrics across market cycles. The upgrade shows the company's ability to maintain a low leverage level, typically between 2x, while still funding strategic growth and share repurchases. S&P Global Ratings highlighted that United Rentals' large scale and increasing variety of specialty equipment provide a strong buffer against potential downturns in nonresidential construction.

A key factor in the higher rating is the company's strong cash flow, with annual free operating cash flow surpassing $1.5 billion over the last five years. S&P expects the company to experience revenue growth of 8% to 10% annually through 2027, driven by ongoing demand for U.S. mega-projects and data center construction. Adjusted EBITDA margins are anticipated to stay steady at 46% to 48%, backed by operating leverage and ongoing fleet reinvestment, according to the rating agency.

Analysts pointed out that United Rentals maintains significant operational flexibility, allowing it to reduce capital expenditures during market downturns, which should help preserve cash flow and keep the debt-to-EBITDA ratio below its 3x target in the long term.