The Dow transports (IYT) are down nearly 12% from their 2011 peak. They have already experienced a correction by nearly any standard. I do not believe that this level of negativity is warranted, and there are many compelling names out there in the transportation sector including Ryder Systems (R).
Ryder reported earnings on 7/27 with Pro-Forma EPS of $0.92 v. consensus of $0.77 and solid revenue. Gross revenue was up 18% y/y and commercial rental revenue was up 38% y/y. Ryder also raised guidance for Q3 to $0.98-1.03 v. consensus of $0.92 and FY 2011 at $3.33-3.34 v. consensus of $2.90-3.00. Ryder beat expectations on every standard imaginable.
Ryder is also investing in the business. First half 2011 CAPEX is at all-time record highs. Per BB&T, when Ryder deploys capital, earnings generally follow for at least 2yrs. This led BB&T to raise Ryder to a buy and raise their price target to $75.00 on July 11th.
FMS (Fleet Management Services) revenue also rose to $3.2 billion vs a prior peak in 2008 of $3 billion. However, as RW Baird notes, "margins have not reached peak prior levels, remaining about 500bps below the prior peak". RW Baird views this as a negative, but I believe given the momentum in commercial truck leasing and the high demand in this space, this is nothing but an opportunity for improvement for Ryder. Yet even RW Baird increased their price target following 7/27 earnings to $66.00 and advised buying on dips to $55.00 or less. I wonder given the current sell off if RW Baird will soon raise their hold to a buy?
Source: RW Baird Equity Research, Ryder Systems Langenfield, Hartford, and Moorhead 7/27/2011
On July 27th following earnings Ryder rose 3% and briefly surmounted $60.00. However the selloff in the broad market and the transports in particular has brought Ryder crashing down. I believe that the fundamentals hardly warrant this sort of reaction.
With a 2% dividend yield, 12x forward P/E, and strong growth, Ryder is a company that should be bought here, not sold. The transports have already corrected. If you believe as I do that the selloff in the transports is overdone and you are looking for a transportation stock to buy, I believe Ryder Systems is a solid choice.