Pat McKeough responds to many requests from members of his Inner Circle for specific advice on buying stocks as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. We give you Pat’s buy-hold-sell recommendation as well as his analysis of the stock. This is part of the specific buy, hold and sell advice we offer you in our daily posts. Every week you get “A Stock to Sell” on Monday, “Best Canadian Stocks” on Tuesday, and “U.S. Stock Picks” on Thursday.

This week an Inner Circle member asked about a company whose rental trucks are a familiar sight on North American highways. Ryder System makes the bulk of its revenue leasing truck fleets under long-term deals. It extends its service to helping clients manage warehousing and distribution. The company has also entered into a venture with a clean energy firm to develop a truck to run on compressed natural gas, potentially a money-saver when gasoline prices are higher. Pat examines the company’s financial situation and assesses its growth prospects.

Q: Pat: I would like your analysis and advice on Ryder System. Thank you.

A: Ryder System Inc. (symbol R on New York; www.ryder.com) leases truck fleets, mainly under long-term deals. It also maintains vehicles and provides other related services. Customers typically supply their own drivers and dispatchers.

The company uses its purchasing power to buy vehicles directly from manufacturers, so it can offer more competitive rates to its customers.

In addition to truck leasing, Ryder helps its clients manage their warehouses and distribution networks and improve their overall efficiency. Outsourcing these functions lets businesses focus on their main operations.

The U.S. accounts for 84% of the company’s revenue, followed by Canada (7%), Europe (6%) and Mexico (3%). It also has a small presence in Asia.

Joint deal aims to make alternative-fuel vehicles more appealing

In the three months ended September 30, 2014, Ryder’s revenue rose 3.2%, to $1.69 billion from $1.63 billion a year earlier. The leasing division’s revenue (70% of the total) gained 4.3%, due to a 2% rise in the number of vehicles leased and higher lease rates on newer trucks. Revenue from the logistics division (30%) gained 1.1%.

Overall earnings rose 12.3%, to $86.5 million from $77.0 million, while per-share earnings gained 11.6%, to $1.63 from $1.46, on more shares outstanding.

Ryder’s long-term debt of $4.1 billion is a high 85% of its market cap. It also held cash of $75.0 million, or $1.41 a share, as of the end of the latest quarter.

The company recently teamed up with Mansfield Clean Energy Partners in a deal that will see Ryder develop trucks that run on compressed natural gas. Ryder plans to lease these vehicles, mainly to companies that transport gasoline and diesel fuel, while Mansfield will develop the necessary fuelling centres. This agreement should make these alternative-fuel vehicles more appealing, particularly when gasoline prices rise again.

Meanwhile, Ryder should continue to benefit from an improving North American economy; its earnings will probably rise from $5.60 a share in 2014 to $6.47 in 2015. The stock trades at 14.0 times this year’s estimate.

The company has raised its dividend 10 times since 2004. The current annual rate of $1.48 a share yields 1.6%.

We view Ryder System as a hold.