Ryder System: Too Many Trucks Chasing Too Little Freight

CLSA started coverage of Ryder System, Inc. R with a Buy rating and $80 price target, saying the cyclical headwinds will abate between second half of 2016 and 2017.

"We believe the outsourcing story still is under-appreciated and will only gain momentum and focus by investors and customers as we encounter additional equipment and driver regulations over the next decade," analyst Kristine Kubacki wrote in a note.

Ryder's commercial rental and used equipment business disappointed on cyclical headwinds despite core full-service lease business grew in 2016. But, the company has cut down its fleet and appropriately guided investors' expectations on used-truck pricing in the current environment.

"We also believe that freight demand and capacity concerns are nearing a bottom, and expect the environment to improve as we progress through 2017," Kubacki continued.

The analyst pointed out Ryder's new adjacent product offerings in the last two years including unbundled service offerings targeting large and relatively untapped customer base of for-hire fleets.

Further, the unbundled maintenance should be a high-margin business for Ryder, while helping it to gain additional share and new customers in non-traditional markets. The analyst noted that fleet growth guidance in core Fleet Management Solutions segment for FY16 is arguably conservative and he expects solid growth to resume in 2017 and 2018.

"Given our expectation for continued momentum in Ryder's core businesses, we believe the stock is compelling despite some continued concerns on the cyclicality of the business," Kubacki added.

Shares of Ryder rose 2 percent to $65.79. The $80 target represents a potential upside of 24 percent over Thursday's close of $64.44.