Ryder Systems Inc: Supply Chains Coming Home

Ryder Systems Inc. is a buy with 17% upside potential over the next year. The company is increasing profitability by expanding its supply chain solution (SCS) and direct transportation solution (DTS) segments while increasing the profitability of it’s fleet management solutions (FMS) segment. Its estimated EV/EBITDA and P/E ratios are 5 and 16 respectively which is in line with industry averages. With global companies moving operations back to North America, to set up more reliable supply chains, Ryder has an opportunity to fight for a share of a growing market in SCS and DTS. After the 2020 lockdowns Ryder emerged as a very profitable company with 113% growth in SCS revenue. Ryder is also showing signs of expanding in 2023 with an estimated $3.16 billion spent on property plant and equipment. Despite fierce competition from industry giants like FedEx and DHL, Ryder competes effectively, leveraging its access to high levels of capital. If Ryder continues to succeed into the near future investors can see large returns caused by Ryder's high levels of leverage, they have a leverage ratio of 4.9. Investing inherently comes with risks, and Ryder is no exception, with major risks being continued inflation, possibility of a microprocessor shortage, higher cost of capital, and other investment risks which give it a potential downside of -31%. Overall, Ryder faces diverse challenges and opportunities, necessitating a comprehensive strategy for sustained growth and resilience.

Highlights

● Growing Revenue Ryders revenue in 2022 was $2,390 million, up 32.6% from the prior year. This growth was mostly due to the 113% increase in SCS and the 69% increase in DTS. In 2023 there was less consumer demand which made outsourced supply chains less necessary, this led to stagnate revenue growth.

● Competitive Environment The supply chain industry is highly competitive, and Ryder is up against giants like FedEx and DHL as well as enterprise holdings competing against their truck leasing business. These companies all have much larger revenue than Ryder System.

● Intrinsic Value The intrinsic value of Ryder is 117.96, calculated with the weighted average of constant free cash flow to firm (FCFF) model, two-stage dividend discount model (DDM), constant DDM and the price to equity (P/E) ratio. The formula put additional weight on the constant DDM due to its reliability and economic grounding.

● Inflation Risks Ryder recently raised the price of their FMS contracts to what they believe is the highest investors would be willing to pay. This could hurt Ryder if inflation persists as they might not be able to raise prices again.

● High Leverage Ryder has a leverage ratio of nearly five, which is twice the standard leverage ratio in the industry. If the logistics industry enters a high growth period than this could provide a substantial short term benefit to investors.

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