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On Jun 14, we maintained our Neutral recommendation on Ryder System Inc. (R - Analyst Report), owing to favorable industry fundamentals along with improved average fleet age, prospects in rental business and better financials. However, the company faces certain headwinds that will likely slow down its growth momentum. The company, which operates with the likes of Aircastle LTD (AYR - Snapshot Report), holds a Zacks Rank #2 (Buy).

Why Maintained?

We believe that Ryder System will continue to benefit from organic growth across its business line. The company expects improved offerings in contractual product lines in the Fleet Management Solutions segment with a newer lease fleet and various maintenance initiatives to increase 2013 earnings. Additionally, organic growth in Full Service Lease along with improved volumes in new business and supply chain are expected to aid the company in generating high revenues in the coming months.

We also appreciate the company’s consistent strategic investment in commercial rental and leased vehicles, maintenance technology, sales and information technology initiatives. Ryder sees immense prospects in rental demand that will likely lead to increased fleet utilization and price.

Hence, the company continues to focus on streamlining its fleet size, with plans to dispose additional used vehicles to meet demand and supply requirements. Ryder’s cost restructuring moves along with its commitment to improve the financial position will enable it to achieve its set objectives.

However, despite these positive aspects, we prefer to stay on the sidelines considering the difficult operating environment with high market competitiveness. Competitors may have greater capital resources or lower capital costs, which will likely remain detrimental to Ryder’s growth. Further, federal regulations, international business risks and the constant need for technical upgrades will likely weigh on the stock.

The second and third quarters of 2013 have the Zacks Consensus Estimate for earnings pegged at $1.22 and $1.46 per share, respectively. This reflects a year-over-year growth of 22.2% in the next quarter and 13.8% in the third.

Other Stocks

Companies operating within the transportation sector that are worth taking notice of are AMERCO (UHAL) and Trinity Industries Inc. (TRN - Snapshot Report). Both the stocks carry Zacks Rank #2 (Buy).

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