Ryder Upgraded on Solid Outlook

We are upgrading our long-term recommendation on Ryder System Inc. (R) to Outperform from Neutral. Currently, the stock has a Zacks # 2 (Buy) Rank. We expect Ryder System to outperform the broader market. The company’s strong fourth quarter 2010 results and management’s solid fiscal 2011 outlook encourages us to upgrade our rating on the stock.

In the recently reported quarter, Ryder System surpassed the Zacks Consensus Estimate by 2 cents. Robust performance by the Fleet Management Solutions segment, driven by improvements in commercial rental businesses and used vehicle sales, led to better-than-expected results. Revenue also exceeded the Zacks Consensus Estimate as the company succeeded in passing higher fuel costs to customers.

In terms of liquidity, cash and cash equivalents showed an impressive increase to $213.1 million at the end of fiscal 2010 from $98.5 million at the end of fiscal 2009. However, total debt increased to $2,747 million from the prior-year level of $2,497.7 million. Debt-to-equity ratio at the end of fiscal 2010 was 0.62 compared with 0.61 at the end of fiscal 2009.

Despite a slow recovery and the lingering effects of a deep freight recession, fiscal 2011 revenue and earnings are expected to grow double digits from past and future acquisitions as well as organic growth. We expect Ryder System to benefit from reviving market conditions, strong rental demand, higher pricing, stronger used vehicle sales, pass-through of higher fuel costs to customers as well as a strong balance sheet. The company’s continued investment in fleets and technology will also fuel earnings growth despite high maintenance cost.

Further, Ryder remains committed to its shareholders via dividends and share repurchase. The company purchased a total of 3 million shares at an aggregate cost of $123.2 million as of the end of 2010. The company has two million shares in an anti-dilutive repurchase program. Ryder pays an annual dividend of $1.08 per share, representing a dividend yield of 2.19%. This is higher than its competitor Con-Way Inc.’s (CNW) dividend yield of 1.22%.

Over the long term, Ryder, the world’s largest provider of integrated logistics and transportation solutions, plans to invest strategically in commercial rental vehicles, maintenance technology, rental fleets, sales and information technology initiatives. These investments are expected to propel revenue and earnings growth in future years. Additionally, a sound balance sheet persuades the company to expand its footprint through more acquisitions.

RYDER SYS (R): Free Stock Analysis Report

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