What Drove A Massive 3x Rise In Old Dominion Freight Line Stock?

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Old Dominion Freight Line stock (NASDAQ NDAQ : ODFL) has seen a 28% fall this year, underperforming the broader S&P500 index, down 18%. However, in the longer term, ODFL stock, with 211% returns from levels seen in late 2018, has significantly outperformed the S&P 500 index, up 57%. ODFL stock now looks fairly valued at levels of around $260, as discussed below.

This stellar 211% rise for ODFL stock since late 2018 can primarily be attributed to 1. a massive 112% rise in the company’s P/S ratio to 4.8x trailing revenues currently, compared to 2.3x in 2018, 2. Old Dominion Freight Line’s revenue rising a significant 48% to $6.0 billion over the last twelve months, compared to $4.0 billion in 2018, and 3. an 8% fall in its total shares outstanding to 113 million, driven by $1.9 billion spent on share repurchases over this period. The increase in revenue and a fall in shares outstanding has meant that Old Dominion Freight Line’s ODFL revenue per share rose 61% to $52.91 over the last twelve months, vs. $32.91 in 2018. Our dashboard on Why Old Dominion Freight Line Stock Moved has more details.

Barring 2020, Old Dominion Freight Line’s revenue has steadily risen with increased trucking demand. Of late, it has benefited from a rise in volume driven by increased demand, available network capacity, and better pricing, including the impact of higher fuel surcharges.

While the strong trucking demand was visible over recent years, the outlook has changed now with rising inflation and interest rates. The U.S. economy has been weak, with GDP contracting over the last two quarters. Consumers have also been scaling back on retail spending amid high inflation while spending more on travel and experiences. This has meant softening volumes. For perspective, Old Dominion Freight Line’s less than truckload shipments growth rate slowed to 2.8% (y-o-y) in Q2 2022, compared to a robust 18.5% in 2021.

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On the positive side, the company has lowered its operating ratio to 71.1% in the first half of this year, vs. 74.0% in the prior year period, bolstering its bottom line. Even if we were to look at the longer term, Old Dominion Freight Line has shown a consistent rise in its operating margin to 28.0% currently, vs. 20.2% in 2018. Our Old Dominion Freight Line Operating Income Comparison dashboard has more details.

Despite the near-term headwinds, Old Dominion Freight Line is expected to see over 20% top-line growth this year to over $6.3 billion (per the consensus estimate). Assuming the current share count of 113 million (reported for Q2 2022), we arrive at the expected revenue per share of $56.16 for the full year 2022. Now, at its current levels, ODFL stock is trading at 4.6x forward expected revenues, compared to the last three-year average of 4.9x, implying that it is fairly priced.

While ODFL stock looks appropriately priced, it is helpful to see how Old Dominion Freight Line’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities, which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for CSX vs. Amcor AMCR .

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