Analysts are Overlooking Outperforming United Rentals, Herc Stocks

The options market is pricing in low volatility expectations for United Rentals, Inc. (URI) and Herc Holdings Inc (HRI)

Feb 16, 2017 at 10:49 AM
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Equipment rental stocks United Rentals, Inc. (NYSE:URI) and Herc Holdings Inc (NYSE:HRI) are both trading near all-time highs. But that doesn't mean the shares are out of room to run. In fact, there is plenty of pessimism surrounding both URI and HRI. What's more, both stocks are offering up prime opportunities for near-term options buyers.

United Rentals Ripe for Analyst Upgrades

At $128.11, URI has tacked on roughly 21% so far in 2017, and nearly 166% in the past 12 months. Since hitting a record peak above $131 on Feb. 1, the shares have been hovering above support at the $125 mark. That hasn't been enough to impress analysts, however. Three-fourths of covering brokerage firms rate URI a tepid "hold." The average 12-month price target also sits underfoot, at $123.86. Simply said, a round of upgrades and/or price-target hikes could send the shares on another leg higher.

Turning to URI's options pits, puts have been the option of preference, particularly among near-term traders. In fact, the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.84 shows put open interest nearly doubling call open interest among options set to expire in the next three months. It looks like a good time to get in on the action, too. United Rentals, Inc. holds a Schaeffer's Volatility Index (SVI) of 29% -- in the low 5th percentile of its 12-month range -- indicating short-term options are well-priced, from a volatility point of view. Plus, the equity's Schaeffer's Volatility Scorecard (SVS) of 91 indicates the shares have made bigger moves over the past year, relative to what the options market has priced in.

Herc Finds a Round-Number Foothold

A relative newcomer to the market, HRI began trading publicly last July, after spinning off from car rental firm Hertz Global Holdings, Inc (NYSE:HTZ). The shares have added a healthy 53.9% from their first-day close, at $50.87, and notched a record high just south of $53 earlier this month. Since then, HRI has been hanging in above its rising 20-day moving average, and recently found a foothold at the half-century $50 mark. HRI has yet to win over analysts, though, with all five firms tracking the shares maintaining a "hold" opinion. Short interest has also been ticking higher since New Year's. An unwinding of these bearish bets, or a round of upbeat analyst attention, could send URI on to higher highs.

Though options volume is light on an absolute basis, the skew toward puts can't be missed. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), options traders have purchased 85 HRI puts over the past 10 days, compared to just 3 calls. Meanwhile, Herc Holdings Inc's short-term options are pricing in historically low volatility expectations, with an SVI of 46% -- lower than 93% of all comparable readings from the past year.

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