Ryder is highly involved in the trucking industry, and as a result the company's prospects tend to be somewhat tied to the economy. After all, the country ships less goods when the economy is down, so it is only natural for Ryder's results to suffer when that happens. However, this leads many speculators to become involved in the pricing of Ryder's shares through speculating about macro economic concerns. Intelligent Investors know that this is a dangerous activity, as speculating invites emotion into investment decisions and as a result it should be avoided as much as possible.
Rather, Intelligent Investors must stick to their investment techniques and look primarily at the fundamentals and actual results the company achieves. A company must have strong financial statements to prove that it is stable enough for Intelligent Investors. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company. By using the ModernGraham method one can review a company's historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a specific look at how Ryder System, Inc. fares in the ModernGraham valuation model.
R data by YCharts
Defensive Investor - must pass at least 6 of the following 7 tests: Score = 5/7
- Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
- Sufficiently Strong Financial Condition - current ratio greater than 2 - FAIL
- Earnings Stability - positive earnings per share for at least 10 straight years - PASS
- Dividend Record - has paid a dividend for at least 10 straight years - PASS
- Earnings Growth - earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - FAIL
- Moderate PEmg ratio - PEmg is less than 20 - PASS
- Moderate Price to Assets - PB ratio is less than 2.5 or PB x PEmg is less than 50 - PASS
Enterprising Investor - must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5
- Sufficiently Strong Financial Condition, Part 1 - current ratio greater than 1.5 - FAIL
- Sufficiently Strong Financial Condition, Part 2 - Debt to Net Current Assets ratio less than 1.1 - FAIL
- Earnings Stability - positive earnings per share for at least 5 years - PASS
- Dividend Record - currently pays a dividend - PASS
- Earnings growth - EPSmg greater than 5 years ago - PASS
|Value Based on 3% Growth||$54.45|
|Value Based on 0% Growth||$31.92|
|Market Implied Growth Rate||5.11%|
|Net Current Asset Value (NCAV)||-$115.09|
Balance Sheet - 9/30/2013
Earnings Per Share
Earnings Per Share - ModernGraham
R Dividend data by YCharts
Ryder System, Inc. is not suitable for either Defensive Investors or Enterprising Investors. The company's current ratio is far too low for Defensive Investors, and it has not sufficiently grown its earnings over the ten year period. For Enterprising Investors, the company holds too much debt relative to its current assets. As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham's methods should research other opportunities, such as through a review of companies that pass the ModernGraham requirements.
From strictly a valuation side of things, the company's EPSmg (normalized earnings) have grown from $3.10 in 2009 to $3.76 for 2013. This level of demonstrated historical growth lags behind the market's implied estimate for growth of 5.11%. As a result, the ModernGraham valuation model returns an intrinsic value that is below the price at which the market currently trades, and the company appears to be overvalued.
The next part of the analysis is up to individual investors, and requires discussion of the company's prospects. What do you think? What value would you put on Ryder System, Inc.? Where do you see the company going in the future? Is there a company you like better?
Disclosure: The author did not hold a position in Ryder System, Inc. (R) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.