Buy Ryder (R) Ahead of Feb Earnings - Stifel

Stifel analyst, David Ross, remains a buyer of Ryder (NYSE: R) ahead of February earnings. He offers 5 reasons why the company is not as weak as the share price would suggest. No change to Buy rating or $92 PT.

Ryder is a company with a lot of debt in an industrial recession but the downside \is limited after falling 40% this year compared to the S&P which is down only 1.8%. Ryder is still benefiting from the facts that trucks are more expensive and harder to maintain and these trends are not changing anytime soon.

5 reasons the outlook for Ryder is not as bad as the market implies:

1) Used truck pricing is skewed to the negative by Navistar Maxxforce engine vehicles, but those are not the trucks Ryder is selling.

2) Rental is where Ryder takes the capacity risk, but utilization and pricing have been good all year, and 4Q15 should show continued growth in demand.

3) Ryder's at 70%+ debt/cap is not like a TL or LTL carrier with 70%+ debt/cap, as the majority of its assets are backed by long-term contracts and not at-risk in the spot market or fickle for-hire trucking segment.

4) Free cash flow is counter-cyclical—as the company grows its leasing business, it signs long-term contracts (5-6 yrs) with customers and spends the capital up front before lease payments begin. And when Ryder's leasing business slows, free cash flow should be abundant, mitigating financial risk in a downturn.

5) If interest rates rise, so do borrowing cots and lease rates for everyone, so we do not believe it disadvantages Ryder, especially since most of its debt is fixed-rate.

That said, the market needs to recognize something to begin giving the company (and shares) credit for a turnaround. The stock will need earnings reports showing the company’s results are not weakening as (much as) feared and/or improving comps in the industrial sector (i.e., rail volumes, truck volumes, ISM Index) to get it heading significantly higher.

One other thing could accelerate share price gains: stock buybacks. Share buybacks were temporarily paused in January 2015, but management did say it would consider resuming the anti-dilutive buyback in 4Q15.

For an analyst ratings summary and ratings history on Ryder Systems click here. For more ratings news on Ryder Systems click here.

Shares of Ryder Systems closed at $55.12 yesterday.

You May Also Be Interested In

• Ryder Systems (R) PT Raised to $120 at Stephens
• Ryder Systems (R) PT Raised to $126 at JPMorgan
• ProPetro Holding (PUMP) Increases Share Repurchase Authorization to $200 million