Bull of the Day: Ryder (R)
What do you get when you cross the need for efficient, affordable global commerce with an economy that’s sputtering along and corporations trying to cut costs but maintain customer satisfaction?
Logistics outsourcing! (Well that’s one solution at least)
In a nutshell, Ryder’s services can be utilized to save companies money, keep their margins wide, surprise costs minimal and their logistic issues under control. If sales growth is nominal and margins are cherished like a newborn baby, outsourcing is a viable and sometimes necessary option.
If you’re not familiar, Ryder R system is more than just a truck rental company. They are a provider of innovative outsourced transportation, logistics and supply chain solutions globally.
Their Fleet Management Solutions division (FMS) provides leasing, rental and preventive maintenance of trucks, tractors and trailers to commercial customers. Supply Chain Solutions (SCS) manages the movement of freight and related information from the acquisition of raw materials to the delivery of finished products to end-users. SCS also provides dedicated transportation solutions, known as Ryder Dedicated, a turn-key transportation service that combines vehicles, maintenance, drivers, routing and other value-added services.
Riding Strong Earnings Ryder recently reported (April 23rd) a 37% year over year jump in earnings per share to 81 cents, trumping the Zacks Consensus estimate by 2 cents. This latest report marks the 4th earnings beat in a row for the company at an average of almost 6%.
Even though shares initially moved lower, the stock has been charging higher since for good reason as investors find value in the logistics company; the 2.10% dividend yield doesn’t hurt either.
CEO Robert Sanchez noted that the company “experienced better-than-expected demand for commercial rental in North America with higher utilization on a smaller fleet.” Weak demand in the UK stole a little bit of the jam from their donut, but Ryder still reaffirmed its full-year 2013 earnings forecast of $4.70 to $4.85 per share and sees Q2 EPS of $1.20 to $1.24 per share. The Zacks Consensus is for Q2 EPS of $1.22 and $4.84 in FY2013.
The company also sees continued and increasing strength in their commercial rental divisions as well as strength in used vehicle sales.
After the report we saw several analysts move their estimates and ratings up on the stock, for the current quarter as well as FY2013 and FY2014. Shares are still fairly cheap at just 12 times forward earnings, even though we have seen Ryder at much lower multiples over the past couple years.
There could still be decent upside here if the American economy does indeed continue to improve as FY2014 estimates are still relatively conservative. Of course a boom would be great for the stock, but slow growth also provides impetus for goods to be moved and for companies to keep logistics outsourced; to me, this leaves upside for the shares.
Ryder and Natural Gas Just a week ago, AT&T T announced a plan to spend $350 million to replace about 8,000 gasoline-powered service vehicles over five years. AT&T currently has 5,200 natural gas vans on the road, or about 7 percent of its fleet.
These same steps are being taken by several large companies including UPS UPS, FedEx FDX and others including Ryder.
Gas (Diesel) consumption in the transportation industry was roughly 400 million gallons of gasoline equivalent last year, double the 200 million in 2005 according to NGVAmerica data. Gasoline demand was 134 billion gallons, according to the EIA.
According to several sources, a fleet owner paying $65,000 more for a long-haul truck engine fueled by liquefied natural gas could see a 20-25% percent rate of return over the life of the vehicle compared to a traditional gas engine.
Ryder has already begun to implement natural gas powered vehicles into its fleet; so if you are a longer term player in the stock, that cost savings should begin to mount up in the coming years.
Natural gas is a “ready-now” viable alternative to traditional petrol and it’s cheaper, (saving truckers as much as $1.50 a gallon), burns cleaner and makes it easier to for manufacturers and operators to meet emissions standards. Infrastructure for nat gas is already on the rise in a big way.
The Charts Since the earnings report on April 23rd, Ryder shares have been forming an ascending bullish triangle up against their 50 and 20 day moving averages ($58.28 & $57.87 respectively) before breaking out three days ago.
This breakout kept the short term bullish trend alive and shares are now approaching their next resistance level around $61.70, which has been a hard ceiling for the shares over the past month or so.
While shares are slightly overbought here, there is a possibility of a quick breakout above that resistance level ($61.70) and then a 2-4% rally from there being that the Average True Range (ATR) is roughly 3.3% of the stock price and a surge above a major resistance level usually prompts a rally of that magnitude.
Shares also remain in a strong overall bullish trend perched high above their 200 day moving average of $46.77. While it’s good to have the 20 and 50 day averages close below for support, keep in mind that Ryder’s Beta of 1.7 makes it highly correlated to market movement with a slight amplification of that movement.
Look for strong support around the $57.70 level, which is right below the 50 day moving average.
If you are a market timer, look for a down day in the market to try and get a slightly better price. For those of you who are investors, take a peek at their business; Ryder shares might be worth a look and at least part of your allocation if it meets your risk tolerance.
Jared A Levy is one of the most highly sought after traders in the world and a former member of three major stock exchanges. That is why you will frequently see him appear on Fox Business, CNBC and Bloomberg providing his timely insights to other investors. He has written and published two tomes, “Your Options Handbook” and “The Bloomberg Visual Guide to Options”. You can discover more of his insights and recommendations through his two portfolio recommendation services:
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