Wells Fargo is maintaining a favorable stance on the Construction Rental and Truck Machinery group as companies prepare to report second-quarter results. The bank labels United Rentals (URI), Cummins (CMI), and Caterpillar (CAT) as overweight, asserting that the recovery in U.S. non-residential construction and trucking is evolving from supply constraints into a recovery supported by underlying demand.
The firm reports mixed inventory dynamics within rental fleets. Supply of used earthmoving equipment declined 3% in the second quarter and is down 13% year-over-year, while aerial equipment inventory rose 1% sequentially and is up 4% on a year-over-year basis. Channel checks in the southeast region indicate roughly 100 basis points of year-over-year rental dollar utilization growth in the quarter.
Wells Fargo’s checks on Caterpillar reveal lengthening lead times for reciprocating engines. The bank highlights a 135% increase in its AI turbine tracker during the quarter and notes that data center starts are running at roughly twice capital expenditure spending levels. Taken together, these indicators support the potential for Caterpillar’s order growth to accelerate beyond the 52% rise recorded in the first quarter. Wells Fargo’s earnings-per-share estimates for Caterpillar sit 6% above consensus.
On the trucking side, the spot market tightened in the second quarter. Load-to-van ratios increased 9% from the first quarter and are at levels roughly 2.5 times the historical average, according to Wells Fargo. Spot rates were up about 45% year-over-year. The bank interprets those moves as signals that current order growth is driven by fundamental demand rather than by pre-buying activity.
Lead indicators across multiple construction end markets showed broad improvement in the second quarter. Power sector starts rose by more than 100% year-over-year on a last-twelve-months basis. Retail starts increased 11% and office starts gained 12%. Wells Fargo emphasizes that data centers, power, and semiconductors make up 40% of all private non-residential construction but accounted for 70% of private non-residential growth during the prior cycle. Based on these metrics, the bank projects potential private non-residential growth of 8% to 10% in 2027.
Wells Fargo also examined agricultural machinery trends and found mixed signals. An early order program check identified weakness in a challenged geography. Brazil remains a difficult market, with retail sales down 9% in April and May. Despite that softness, used values improved for certain equipment classes, with tractor values up 5% and combine values up 7%.
Overall, Wells Fargo frames the sector as transitioning from inventory-driven recovery dynamics to demand-led growth. The combination of rental utilization gains, tightening spot trucking markets, elongated engine lead times, and concentrated strength in data centers, power, and semiconductors forms the basis for the bank’s constructive stance on selected equipment and parts suppliers heading into second-quarter earnings.
Context and implications
- Rental utilization and used equipment supply trends provide insight into fleet turnover and rental revenue potential.
- Tightening spot trucking markets and higher spot rates point to strengthening freight demand and truckload pricing power.
- Concentrated growth in data centers, power, and semiconductors is materially influencing private non-residential construction dynamics and equipment order books.