Ryder System: The Most Interesting Play In Logistics
2022.06.07 13:25
Ryder System (NYSE:R) may be the most interesting play in logistics today. The company is operating in what we view as the three most important segments of the industry, but it is grossly undervalued and pays a high yield for the industry. On the business side, the company operates in 3 segments, including Fleet Management (renting trucks), Supply Chain Solutions (designing supply chain systems), and Dedicated Contract Services.
The takeaway here is the company is renting trucks to people who need them, helping other businesses develop their supply chains, and providing reliable trucking/logistics services to those in need. On the investment side, the company trades at a mere 5.85X its earnings compared to more than double that for the average trucking stock while paying one of the highest dividends in the sector.
Ryder System Raises Guidance, Analysts Follow
Ryder System is a deep value relative to the industry and the broad market, and that value only deepens when you consider the new guidance. The company raised its outlook for both the Q2 and FY periods, and we see upside risk in the outlook. The new guidance for the entire year is up to $0.40 at both ends of the range but still only in line with the consensus, while the Q2 guidance is well above the consensus. Based on the momentum shown in Q1 and the Q2 guidance, we expect to see the Q3 and second-half outlook improves later in the year.
“Our increased outlook reflects the earlier-than-expected realization of benefits from pricing initiatives in all business segments and strong rental and used vehicle sales performance in the second quarter,”
Said CEO Robert Sanchez in the guidance update.
The analyst’s activity in Ryder System has been mixed over the past year, but the post-Q1-release activity signals a shift in sentiment. At least 2 of the seven analysts with current coverage have either raised the stock price target or the stock rating. Wolfe Research upped its target to Market Perform from Underperform, while Wells Fargo (NYSE:WFC) raised its price target to $81. The $81 price target is below the consensus estimate, which has been in decline for the last 90 days but lifts the low end of the range by $27, and we are expecting more activity of this kind.
Ryder System Confirms Bottom On Takeover Bid
Ryder System’s share prices broke out of a trading range to the downside just before the Q1 results were released. That move turned out to be a whipsaw and false breakout confirmed by the release, and then a few days later, a major shareholder, HG Vora Capital Management, offered to take the company private. That news came with a significant premium to share prices with which at least one analyst does not agree. According to Baird, this company is executing well on a turnaround and deserves a much higher multiple, and we agree.
“We view a near-term sale as unlikely unless takeout value rises meaningfully,” he wrote to clients. “We think the proposal undervalues the company based on its normalized earnings potential and would expect a larger premium and/or formal sale process to commence if the company chooses to explore strategic alternatives.”
The Technical Outlook: Ryder System Is On Track For New Highs
Price action in Ryder System has been rangebound but with a bullish bias. The price action moves up within the trading range and will most likely test for resistance at the top of the range near $90. If the market can get above that level, we see it moving up to retest the all-time highs in the range of $95 to $100, or about 8.5% above the current price. However, if the market can not get above $90, this stock may remain rangebound until there is a change in the broad market, the economic outlook, or both.
Ryder System Stock Chart.
