On May 31, we initiated coverage on Old Dominion Freight Line, Inc. ODFL. The trucking company primarily offers less-than-truckload (LTL) services on a regional, inter-regional and national basis.
Upbeat Price Performance
In a year’s time, Old Dominion has performed well, handily outperforming its industry. While shares of the company have surged 76.2%, the industry rallied 41.9%.
LTL Unit – A Key Catalyst
Solid growth at the company’s LTL unit led to its impressive price performance. In fact, LTL service revenues account for bulk of Old Dominion’s top line. Revenues at this segment are being aided by growth in LTL tons and yield.
We expect the company’s LTL segment to perform well in the coming quarters as well, thereby driving growth at Old Dominion. Notably, LTL tons per day and LTL revenue per hundredweight improved 15.8% and 6.4%, respectively, in April 2018. With the domestic economy on solid footing, LTL revenues should continue increasing.
The fact that this Thomasville, NC-based company is on a growth path is evident from its expected earnings per share growth rate (three to five years) that stands at an impressive 23.3%, which compares favorably with its industry’s 18.4% reading.
Other Positives
This Zacks Rank #2 (Buy) company’s efforts to reward shareholders through dividends and share buybacks are impressive. In February 2018, Old Dominion’s board of directors approved a 30% hike in its quarterly cash dividend to 13 cents per share (or 52 cents annually). The company’s board also cleared a new buyback program recently.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other transportation stocks like Southwest Airlines Co. LUV, Canadian Pacific Railway Ltd. CP and Expeditors International of Washington, Inc. EXPD also raised dividend payouts lately.
Furthermore, the new tax law is a boon to U.S.-based transportation companies like Old Dominion. The significant cut in corporate tax rate should boost cash flow, which in turn, mighty aid the bottom line.
Moreover, the provision allowing capital expenditures to be tax-deducted in the year they are incurred is also favorable for stocks like Old Dominion. This is because such companies invest significantly toward capital expenditures. Effective tax rate in the first quarter of 2018 reduced to 25.2% from 38.6% a year ago. The same is projected around 26.2% for the remaining quarters of 2018.
The company’s Momentum Score of B further highlights its short-term attractiveness.
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