Ryder System, Inc. (R) operates as a logistics and transportation company worldwide. The company operates through three segments: Fleet Management Solutions; Supply Chain Solutions; and Dedicated Transportation Solutions. On the other hand, XPO Logistics, Inc. (XPO) provides supply chain solutions internationally. The company operates in two segments: Transportation and Logistics.
The COVID-19 pandemic has caused supply chain disruptions worldwide, severely affecting the production of goods and services. Moreover, Federal Reserve chair Jerome Powell said that the global supply chain issues could remain through 2022. So, supply chain solutions companies should witness a solid increase in demand for their services in the near term. According to a Future Market Insights report, the global supply chain management market is expected to grow at a CAGR of 11.4% between 2021 and 2031. Therefore, both R and XPO should benefit.
R has gained 13% over the past month, while XPO has returned 2.1%. Also, R’s 20.4% gain over the past six months is significantly higher than XPO’s negative return. Moreover, R is the clear winner with a 24.4% gain versus XPO’s negative return in terms of the past three months’ performance.
But which of these two stocks is a better buy now? Let’s find out.
On October 19, 2021, R and Gatik announced a multi-year partnership designed to establish an autonomous logistics network for Gatik’s customers in the U.S. and Canada. This partnership leverages R’s expertise in fleet servicing and maintenance to commercialize autonomous delivery at scale.
On October 18, 2021, XPO opened a state-of-the-art less-than-truckload service center in Chicago. Mario Harik, acting president, less-than-truckload, XPO Logistics, said, “This strategic hub will have a positive impact on customer service throughout our LTL network, as well as the Illinois economy.”
Recent Financial Results
R’s operating revenue increased 18% year-over-year to $1.92 billion for the fiscal second quarter that ended June 30, 2021. The company’s comparable EBITDA grew 14% year-over-year to $624.10 million, while its net earnings came in at $149.10 million compared to a loss of $74.10 million in the prior-year quarter. Also, its EPS came in at $2.77 compared to a loss of $1.42 in the year-ago period.
XPO’s revenues increased 43.8% year-over-year to $5.04 billion for the fiscal second quarter that ended June 30, 2021. The company’s adjusted EBITDA grew 194.8% year-over-year to $507 million, while its adjusted net income came in at $209 million compared to a loss of $29 million in the prior-year quarter. Also, its adjusted EPS came in at $1.86 compared to a loss per share of $0.32 in the year-ago period.
Past and Expected Financial Performance
R’s revenue and EBITDA grew at CAGRs of 4.9% and 9.3%, respectively, over the past three years. Analysts expect R’s revenue to increase 7.8% for the quarter ending December 31, 2021, and 10.9% in fiscal 2021. The company’s EPS is expected to grow 141% for the quarter ending December 31, 2021, and 2,903.7% in fiscal 2021.
On the other hand, XPO’s revenue and EBITDA grew at CAGRs of 4% and 8.2%, respectively, over the past three years. The company’s revenue is expected to increase 35% for the quarter ending December 31, 2021, and 15.2% in fiscal 2021. Its EPS is expected to grow 17.6% for the quarter ending December 31, 2021, and 120.4% in fiscal 2021.
XPO’s trailing-12-month revenue is 2.08 times what R generates. However, R is more profitable with an EBITDA margin and levered FCF margin of 27.95% and 17.84% compared to XPO’s 9.47% and 4.25%, respectively.
However, XPO’s ROE, ROA, and ROTC of 17.93%, 3.95%, and 5.38% are higher than R’s 11.88%, 3.43%, and 4.79%, respectively.
In terms of forward non-GAAP P/E, XPO is currently trading at 20.08x, 71% higher than R’s 11.74x. Moreover, XPO’s forward EV/EBITDA ratio of 13.68x is 222.6% higher than R’s 4.24x.
So, R is relatively affordable here.
R has an overall grade of A, which equates to a Strong Buy rating in our proprietary POWR Ratings system. On the other hand, XPO has an overall grade of C, which translates to a Neutral rating. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
R has an A grade for Growth, consistent with analysts’ expectations that its EPS and revenue will increase in the upcoming months. On the other hand, XPO has a C grade for Growth, in sync with analysts’ expectations that its EPS and revenue will decline in the near term.
In addition, R has a B grade for Momentum. This is justified given R’s 44% return year-to-date and a 73.4% gain over the past year. However, XPO has a C grade for Momentum, in sync with its 28.2% decline year-to-date and 10.8% decline over the past year.
Also, R has a B grade for Value, consistent with its forward EV/EBITDA of 4.24x, 66.2% lower than the industry average of 12.53x. However, XPO has a C grade for Value, in sync with its forward EV/EBITDA of 13.68x, 9.1% higher than the industry average of 12.53x.
Moreover, R has a grade of B for Quality. This is justified given R's 27.95% trailing-12-month EBITDA margin, 107.3% higher than the industry average of 13.49%. On the other hand, XPO has a Quality grade of C, in sync with its 9.47% trailing-12-month EBITDA margin, 29.8% lower than the industry average of 13.49%.
The supply chain solutions industry is expected to grow exponentially with increasing demand this year and beyond. While both R and XPO are expected to gain, it is better to bet on R now because of its lower valuation, higher profit margin, and better growth prospects.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Industrial - Services industry here. Also, click here to access all the top-rated stocks in the Trucking Freight industry.
R shares were trading at $91.62 per share on Monday afternoon, up $2.68 (+3.01%). Year-to-date, R has gained 51.88%, versus a 23.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.Ryder System vs. XPO Logistics: Which Supply Chain Solutions Company is a Better Buy? appeared first on StockNews.com