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Publicly traded companies mentioned herein: Ryder Systems (R)

Highlights

Ryder Systems offers commercial fleet management and supply chain solutions. The presenter noted that when the company is out of favor, investors generally view it as a lease finance business that should be priced at book value; when in favor, however, it is seen as a logistics business that should be valued on earnings. For his part, he regards it as a low quality spread business with poor returns on capital. The company buys trucks and leases them out for 5-7 years, ultimately selling them for their residual value at the end of their lease life. Ryder has recently benefitted from sharp increases to booked gains on sales of its used trucks, the pricing of which has been extremely strong in recent years. Additionally, most of its trucks being sold today were likely purchased at steep discounts during the recession years. On trailing LTM basis, the gain on sale of trucks sold represents roughly one-third of the company’s EPS, with the Street extrapolating recent gains seemingly into perpetuity.