We issued an updated research report on Ryder System, Inc. (R) on Sep 5. The company reported strong second-quarter 2014 results with earnings and revenues beating the Zacks respective Zacks Consensus Estimate and also exceeding the year-ago levels.
Currently, the Zacks Consensus Estimate for third-quarter earnings is pegged at $1.63, representing 11.4% growth on a year-over-year basis.
We believe the company’s growth trajectory hinges on improvement in lease fleet and commercial rental of truck. Further, Ryder is experiencing an improvement in fleet age, implying more renewals and organic fleet growth. Additionally, we are encouraged by healthy performance from the company’s on-demand maintenance initiative and strong supply chain volumes.
Ryder System continues to benefit from organic growth across its business line. Strong market demand with tighter transportation markets, in particular for trucks, has enabled the company to realize higher pricing, propelling earnings growth. The company expects demand in Full Service Lease and solid performance in Commercial rentals along with on-demand maintenance initiatives to improve 2014 earnings.
Further, the Supply Chain business is expected to grow on the back of strong new sales and rise in customer volumes. Given these tailwinds, for the third quarter of 2014, the company expects earnings in the range of $1.58 to $1.63 per share. For 2014 as well, Ryder raised its earnings per share (EPS) estimate to $5.50 to $5.60 per share, up from the previous estimate of $5.40 to $5.55 per share.
However, given continued industry consolidation, Ryder remains exposed to strong market competition. Competitors may have greater capital resources or lower capital costs, which will likely be detrimental to Ryder’s growth. Increased competition could create downward pressure on freight rates and continued rate pressure may adversely affect the company’s profitability.
Further, Ryder is exposed to the residual risk on the value of its fleet of vehicles. A significant portion of the company’s business depends upon the market for used vehicles. As a result, if the market for used vehicles remains subdued, or vehicles lack proper maintenance, the company would incur lower sales proceeds from used vehicle sales.
Ryder currently has a Zacks Rank #2 (Buy).
Stocks That Warrant a Look
The Greenbrier Companies, Inc. (GBX), Trinity Industries Inc. (TRN) and American Railcar Industries, Inc. (ARII) are some of the stocks worth considering in this sector over the near term. While Greenbrier Companies sports a Zacks Rank #1 (Strong Buy), Trinity Industries and American Railcar carry a Zacks Rank #2 (Buy).
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