Why Ryder System Is a Strong Value Play

Ryder (NYSE: R  ) is a trucking company that just won't quit. Since 2009, it's brought its financials back to nearly pre-recession levels, during a continued freight spending recession. Most impressively, it has accomplished this through a willingness to adapt and change its business model to suit the economic environment.

In 2012, there was a large decrease in freight rental demand, which is a large driver for Ryder's revenue growth. Using business analytics and its industry experience, the company still managed to raise and beat earnings and revenue expectations.

Ryder gets rewarded
Ryder flexed its muscle, producing EPS growth of 15% in Q3 2012 in the midst of adversity, and investors responded. The stock has surged 80% since July 6, 2012. As shown below, the stock continued its growth from January to March, but has been sitting at or near the $60 level since then.

R Chart

R data by YCharts

Ryder displays the ability to survive and thrive in a variety of economic environments and has provided great returns to shareholders within the last year. The best part about this company is that it's not resting on its laurels, but working toward new and innovative ways to continue growing bottom and top-line results. Below are some key reasons why Ryder is a stock that would be the perfect addition to any Fool's portfolio.

Growth has left analysts' expectations in the dust
In the last four quarters, Ryder has beaten EPS estimates by an average of 5%. The company recently increased the lower range of its guidance to a range of $4.75 to $4.85 due to continued confidence in its improved operating performance.

Ryder has recently made it an initiative to work toward adapting to any environment and become willing to adjust its business model. In the past year and a half, this has included increasing its sales of used vehicles; reducing its fleet size so that it could have more trucks in use, even if it couldn't charge more to rent them; and moving toward more contract-based businesses through acquisitions. All of these new initiatives were created when the company had its back to the wall and needed to find new ways forward.

Ryder Keeps on Trucking
One of the key points of growth was the increase in utilization of the commercial rental fleet, which grew to its highest level in Ryder's history. A record 80.5% of the available trucking fleet is being currently rented out by customers.

The best part of the utilization growth is that it's not the company's only growth strategy -- just one way it adapted to its economic situation. The company ultimately aims to grow profits by increasing rental prices. Ryder executives and analysts agreed the increase in utilization is not the ideal path, but the ability to reach this level of utilization displays the flexibility of the company's operations and dedication to returning value to shareholders.

Do not assume that Ryder was lucky last quarter to find a new way to grow its profits. The company has adjusted for the upcoming spending environment and is forecasting a double-digit margin in its largest segment, fleet management solutions. This would be its first double-digit margin since 2008, and it is happening while freight spending is still low.

Ryder has decided to stop at nothing to maintain and grow margins by finding new methods to succeed. Some of these methods are benefits from replacing older fleets, cost management, and even turning into used car salesmen by opening up used Ryder vehicle sales centers in Canada.

Ryder's trailing P/E is 14.1, has a forward P/E of 11.5, and offers a dividend with a current yield of 2.29%. This is impressive compared to the Rental & Leasing Services Industry average P/E of 25.5 and dividend yield of 1.80%. The dividend has also consistently increased, rising 9% in the most recent quarter.

How Can a Mature Trucking Company Innovate?

Innovation has become a key goal for the Ryder leadership team. The company has recently rolled out an alternative fuel fleet which includes compressed and liquid natural gas vehicles as well as hybrid vehicles. These vehicles burn fuel cleaner and also allow the customers to improve its "green" image. The "Flex-to-Green" lease offering creates an easier way for customers leasing private fleets to start their transformation to sustainability. This allows customers to add alternative fuel vehicles to its fleet without having to replace the entire fleet and has been a large success thus far.

It is also focusing on creating new and innovative transportation and logistics solutions specific to certain industries. For example, the company has produced a solution for the oil and gas industry that is quickly gaining customers. This solution is utilizing the company's experience and leveraging Ryder's assets to decrease spending in premium shipment costs, decrease fleet equipment used, and lower the amount of pickup and delivery days by 50%.

Bottom Line

Ryder's ability to adapt and innovate to grow profits will continue to allow the company to succeed in any economic environment. A company with its expertise and experience will not slow down, but continue to expand and create convincing returns for all investors. That's why Fools need to recognize that Ryder just will not quit -- before the rest of the market catches on.


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