JPMorgan Starts Ryder At Neutral

JPMorgan’s Brian P. Ossenbeck initiated coverage of Ryder System, Inc. R with a Neutral rating and a price target of $61. Ryder benefits from the outsourcing of logistics by companies that wish to avoid increasing regulatory and technological complexity, rising costs and increased focus on timely delivery.

The company already enjoys a strong position in the outsourcing segment and is now expanding its lease fleet to further penetrate private fleets, given the high retention rate and revenue per vehicle in the segment.

Analyst Brian Ossenback noted, “Over 75% of Ryder’s operating revenue is covered by stable, multi-year contracts for vehicle lease, maintenance, warehouse management or dedicated fleets. Two-thirds of dedicated revenue growth is derived from up selling to existing lease customers, driving significant improvement in revenue per customer.”

The ongoing decline in the used vehicle prices may, however, have a negative impact on Ryder’s gains on the sale of used vehicles. Ossenback expects this to result in an EPS headwind of $0.68. Ryder’s future earnings are also expected to be hit by a decline in revenues from its commercial rental segment.

Ryder’s shares deserve to trade at a discount to the average EV/EBITDA multiple, given a weak outlook for transactional segments as the company trims its rental fleet and faces soft used vehicle prices, Ossenback added.