Increased capital expenditures guidance in 2012 may mean higher earnings for truck-leasing companies as they use capex to refresh their commercial rental fleets in response to increased demand for full-term lease contracts, says Kevin W. Sterling, CFA, Senior Vice President and Senior Equity Research Analyst at BB&T Capital Markets.
“Now we are beginning to see the commercial rental demand translate to more leasing activity,” he said. “I find it encouraging that we are seeing an uptick in leasing because that tells me that the business community feels a little bit better about the environment and their long-term demand picture.”
Sterling has a “buy” rating on Ryder System, Inc. (R). He believes 2011 is going to be a record capex year for Ryder with the company spending about $1.8 billion, and he says he expects 2012′s capex spend to surpass 2011′s level. Sterling also notes Ryder only buys a truck in its leasing division when it knows it has a lease agreement in hand.
“Last cycle, Ryder was at $75 stock, and today, it’s in the low $50s, but yet the company is spending a record level of capex, which could imply record earnings,” Sterling said. “In my opinion, there is a disconnect between the fundamentals and the stock price, which I believe is being driven by economic uncertainty. History tells us that as Ryder’s capex increases their earnings increase.”
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