On Dec 4, we maintained our Neutral recommendation on integrated logistics and transportation solutions provider Ryder Systems Inc. (R). We are encouraged by the company’s growth trajectory on improvement in lease fleet and used vehicle sale.
However, sluggish economic growth and some lost business in the U.K. remain causes for concern. This Florida-based company holds a Zacks Rank #3 (Hold).
Why Maintained?
The company continues to benefit from strong market demand with tighter transportation markets, in particular for trucks, which has enabled the company to realize higher pricing, propelling earnings growth. Additionally, used vehicle sales will continue to increase, with stable pricing and solid inventories aiding growth.
Ryder’s FMS segment will benefit from higher lease rates on replacement vehicles, reflecting new engine technology and improved commercial rental business. Commercial rental business is expected to grow on higher demand in the U.S.
The expected tailwinds in FMS are expected to support earnings next year. Further, margins in this segment would grow impressively on improved residual value, leased fleet age, gains from fleet management, introduction of products and services and cost improvements.
However, in supply chain business, the company forecasts a lesser growth rate sequentially owing to some lost business and lower volume expectations. Further, downsizing of customer fleet may continue to impact the company’s full service lease business in the future.
Given continued industry consolidation, the company is exposed to market competitiveness. Ryder could become a target for competitors with greater capital resources and strength. Plus, economic uncertainty along with international risk could weigh on the company’s performance going forward.
Other Stocks
Other stocks worth considering within this sector are Trinity Industries Inc. (TRN), The Greenbrier Companies Inc. (GBX) and Amerco Inc. (UHAL). TRN and GBX currently hold a Zacks Rank #1 (Strong Buy) while UHAL carries a Zacks Rank #2 (Buy).
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