After a year of smashing results, will United Rentals, Inc. (NYSE:URI) continue leaving analyst estimates in the dust? The company reported earnings of $1.27 for Q4 that smashed the $1.01 estimate.

A leading supplier of construction and industrial equipment for rent has become a surprising breakout star during a time period when those particular markets were expected to struggle. In fact, a prime rental equipment market of non-residential construction remains weak with an expected strong rebound not until 2014 and 2015.

The company made all this progress in 2012 on the basis of only a modest improvement in the construction market by growing market penetration. Based on this knowledge, is the company that reported 50% earnings growth a bargain trading at only 8x forward earnings?

Shift towards rentals

As with every recession, weak results force company executives to rethink processes. One of the major shifts in the last recession, whether forced or intentional, was a move towards renting construction equipment instead of buying. Part of the reason was a lack of financing forcing companies to rent equipment. This trend continues as management teams realize the benefits of renting instead of owning idled equipment.

The shift also requires equipment manufacturers to focus more sales efforts on the few purchasers from equipment rental firms instead of numerous individual construction companies.

Terex Corporation (NYSE:TEX) to benefit

Terex Corporation (NYSE:TEX) is a leading vendor to United Rentals via the Genie aerial work platforms (AWP) and lifts and Terex cranes and trucks. Further penetration by the burgeoning rental giant will lead towards potential higher sales for Terex.

Terex is more of an international player but the domestic AWP category is crucial to growth and margins. The stock already trades at 52-week highs, but it trades at a low multiple especially if the domestic construction market picks up in 2014.

CNH Global NV (ADR) (NYSE:CNH) is another possible play on the growth in the domestic rental market. United rents a broad range of Case excavators, forklifts, and loaders. Unfortunately, CNH has a global revenue base of nearly $20B that is too large to be directly impacted by growth at one rental company. It will benefit mostly from the growing need for new construction equipment.

Earnings beat continues

The ability of United Rentals to continuously smash earnings suggests the market is overly pessimistic on the ability of the company to grow profits. The company beat earnings estimates by a cumulative $0.89 during 2012. Considering the $0.31 earnings beat back in Q1, one would’ve expected analysts to catch up during year, yet the company beat Q4 estimates by nearly 26%.

Stock Valuation

The potential exists for an extreme multiple expansion on this stock. The company projected adjusted EBITDA for 2013 of roughly $2.3B with a market cap of only $4.6B. The stock trades at a forward PE of just over 8 now that earnings have rolled over to 2014 numbers. Analysts are forecasting 20%+ growth for the next two years providing for a cheap relative value.