According to Bernstein, shares of United Rentals will fall next year due to a slowdown in the construction sector. On Thursday, the company downgraded the rental company’s stock to underperform market performance and lowered its price target to $269 from $307. That’s about a 19% drop from where the stock is currently trading. The downgrade comes as Bernstein sees United Rentals organic growth expected to turn negative over the next 12 months. Chad Dillard wrote in a note: “Realistic sentiment is deteriorating, construction equipment demand shows signs of slowing, Money Supply growth, resulting in URI organic sales up 4 quarters, leading to increased negative organic growth in the year 23”. “By contrast, the street is forecasting 7% revenue growth in ’23.” Decline in Construction Demolition demand in the construction sector, which accounts for about half of United Rentals sales, is a headwind. While recent bills like the Inflation Reduction Act and the CHIPs Act may help, it likely won’t be enough to ease the pressure on stocks, Dillard said. “Material cost inflation and a lack of affordability are challenging the economics of new residential and non-residential construction,” he said. “The average home costs eight times the median annual income, higher than GFC’s prior, and the rate of growth in non-residential construction costs is outpacing the rate of property price growth. ” In addition, United Rentals has benefited from tight supply chains that allow them to make a lot of money selling used and rental equipment. As demand slows and availability increases as supply chains resume, this will be a headwind for United Rentals gross margins. Now is a good time to sell as the stock has rallied 35% in the last month, signaling that the market is still not priced in the downside ahead. “As fundamentals slow in the second half of the year and negative correction risks become more apparent, we expect URI stock to underperform the broader market,” Dillard wrote. .