On May 22, 2014, we issued an updated research report on
Ryder Systems Inc.
) - one of the largest integrated logistics and transportation
solutions providers. The company posted mixed first-quarter 2014
results with the bottom line beating the Zacks Consensus Estimate
and the top line meeting the same. The company's growth
trajectories hinge on strong demand in Full Service Lease business
and strong performance in commercial rentals along with various
Growth in Fleet Management Solutions (FMS) will be driven by better
customer acceptance for its on-demand maintenance product, which
can be developed further by penetrating four bigger markets in a
completely new way. Ryder is witnessing stronger sales activity and
increased vehicle count for this new service offering. The
projected tailwinds in FMS are also expected to be a result of
favorable demand and pricing outlook in the Commercial Rental
Stronger fleet count from improved new sales, higher lease rates
and improved CPI rate will drive Full Service Lease revenues, which
is expected to grow 5% in 2014. Further, the Supply Chain business
is expected to improve on strong new sales and rise in customer
volumes. Supply Chain is projected to contribute 24-27 cents in
2014 earnings per share backed by 5% revenue growth.
Ryder sees immense prospects in rental demand that will likely lead
to increased fleet utilization and price. The company is buying new
lease vehicles to meet higher customer demand on lease renewals.
Further, in 2014, Ryder plans to invest over $2.2 billion, the
majority of which will be in rental and existing property.
However, within the Commercial rental business, challenges in the
Canadian and U.K. markets could affect the company's performance.
In addition, the deferred maintenance activity and associated cost
of about 3 cents per share are expected to affect the company's
earnings in the second quarter.
We anticipate the higher investment on fleet expansion and vehicle
replacement to weigh down on the company's financial position over
the near term. Further, the company expects the tax rate to be a
percent higher, which could affect its bottom line negatively by 8
cents in 2014.
Currently, Ryder carries a Zacks Rank #2 (Buy).
Key Picks from the Sector
Other well-placed stocks within the industry are
Trinity Industries Inc.
Kansas City Southern Inc.
). GMT and TRN currently carry a Zacks Rank #1 (Strong Buy), while
KSU holds the same rank as Ryder.
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