On Feb 28, 2014, we issued an updated research report on Ryder Systems Inc. (R) – one the largest integrated logistics and transportations solutions providers. The company posted mixed fourth-quarter 2013 results beating the Zacks Consensus Estimate on the bottom line but lagging on the top line. The company’s growth trajectories hinge on strong demand in Full Service Lease business, strong performance in commercial rentals along with various maintenance initiatives.
Growth in Fleet Management Solutions (FMS) will be driven by better customer acceptance of its on-demand maintenance product, which can be developed further by penetrating four bigger markets in a completely new way. The projected tailwinds in FMS are also expected to come from favorable demand and pricing outlook in the Commercial Rental space.
Stronger fleet count from improved new sales, higher lease rates and improved CPI rate will drive the Full Service Lease revenue, which is expected to grow 5% in 2014. Further, Supply Chain business is expected to grow on improved retention, strong new sales and modest rise in customer volumes. The Supply Chain is projected to contribute 24–27 cents in 2014 earnings per share backed by 5% revenue growth.
However, within Commercial rental business, challenges in the Canadian and U.K. markets could affect the company’s performance. Lower used vehicle volumes are also expected to affect the company’s performance.
We believe the company’s significant investments, in particular fleet and technology upgrades will remain unfavorable to its cost structure, given the slow economic recovery. Further, the company expects the tax rate to be higher by a percentage, which could affect its bottom line negatively by 8 cents in 2014. Other risks include, higher interest rate on new financing, overhead costs and higher share counts, which could affect the company’s performance.
Currently, Ryder carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
Better-ranked stocks within the industry are Dynagas LNG Partners LP (DLNG), Student Transportation Inc. (STB) and Trinity Industries Inc. (TRN). All these stocks carry a Zacks Rank #2 (Buy).