Ryder System (R) is benefiting from a pickup in commercial vehicle rentals, which can partially be attributed to a housing recovery, and a steady leasing market. Renting is also looking more attractive to businesses as the costs of purchasing and maintaining new equipment rise due to EPA regulation, says Kevin W. Sterling, CFA, Senior Vice President and Senior Equity Research Analyst BB&T Capital Markets.
“I have made Ryder my top pick for 2013 in what is likely to be a slow growth economy. Also, the average age of trucks on the road today is the oldest in history, so I think there is a huge replacement cycle coming,” Sterling said. “When you factor in the cost of new equipment and the high cost of maintenance, I think leasing is a great alternative to replace some of that older equipment instead of buying a new truck.”
Sterling also says Ryder has the ability to tap into the debt capital markets, giving it the ability to fund capex initiatives, which is especially important as the costs of equipment rise. He says Ryder spent $2 billion in capex, and the company historically increases earnings after capex, because the company doesn’t buy a new truck without a lease agreement on hand.
“The interest level from investors is pretty high as many investors are looking for derivative plays on housing and auto, and I believe Ryder fits that bill. Furthermore, I think investors understand the replacement cycle on the horizon and why leasing is an attractive alternative versus purchasing new equipment.”