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Keep Trucking: A look at Old Dominion Freight Line

Ticker: ODFL
Sector: Industrial
Industry: Trucking
Headquartered: Richmond, VA
Moat: Narrow – Cost Advantages, Scale

Action at date of this post

Accumulate as of 06.13.2024
This is technically a buy opinion. Accumulate means if you are an investor that buys periodically then keep buying. If you do not own it, but are looking to buy, this is an indication to open a position of no more than 25% of your intended, total position then accumulate shares over a set time frame.

Old Dominion Fair Value Analysis

I do a fair value analysis on every stock in two ways. The first is the Discounted Cash Flow (DCF) method which I use for most stocks. I also run the Peter Lynch Fair Value method on stocks as well. I like running both as there are times where one way is more meaningful than the other depending on the stock.

Old Dominion Corporate Overview

Old Dominion Freight Line is a prominent American less-than-truckload (LTL) shipping company, founded in 1934 in Richmond, Virginia. Initially a modest family-owned business, it has evolved into one of the largest and most respected LTL carriers in the United States. ODFL specializes in comprehensive LTL services, providing efficient and reliable transportation solutions across North America.

Known for its high customer service standards, state-of-the-art technology, and extensive network, the company ensures timely and safe delivery of goods. ODFL operates a vast fleet and numerous service centers, emphasizing sustainability and operational excellence. Its commitment to innovation and quality has earned it numerous industry accolades, solidifying its reputation as a leader in freight logistics. The company’s growth trajectory and dedication to efficiency make it a cornerstone in the transportation and logistics sector.

Old Dominion Segment Analysis

Old Dominion operates in one segment – LTL. As of the 2023 annual report no one customer makes up more than 6% of revenue.

Old Dominion Moat Source

The company’s network and route density has allowed it to generate above average returns on capital for decades. This fact supports the company having a narrow moat based in cost advantages that comes with the network it has built.

Old Dominion Growth Outlook

It’s important to recognize that LTL carriers are sensitive to the gyrations of the economy. With that as a given, over the long-term ODFL has been a steady grower and is the number two LTL carrier (Fed-Ex Freight is first) by revenue. With Yellow Trucking’s collapse in 2023, ODFL stood to benefit and did. The company has been strategic in moving into regional LTL services which has favorable trends as e-commerce drives retailers to add distribution centers closer to customers.

ODFL is widely known as the best executing LTL carrier. It’s 98% on time rate and limited damage claims are proof positive in its execution quality. For decades the company has built its terminal system into a best-in-class system with lane density unmatched by others. Over the last decade ODFL has spent more than $2 billion on expanding its network capacity while other companies remained stagnant. The terminal network, truck fleet and, planning software have all led to durable advantages. Entering the space has not been and will not be an easy endeavor for any startup given how far ahead ODFL is in the space.

On top of all this is the failure of Yellow Trucking which has bolstered ODFL’s pricing power. In addition, ODFL was able to pick up some assets from Yellow for very reasonable rates.

The Numbers

We have already established that ODFL is sensitive to the whims of the economy. Therefore, we should expect the company to have lumpy revenue and earnings. What has not been lumpy is the companies ability to generate enviable ROIC and profit margins.

This website and associated newsletter along with its content/links are not financial advice. Nothing in this newsletter is an investment recommendation. All content is created for entertainment, educational, or informational purposes only. My strong buy, accumulate, hold, reduce or sell opinions are exactly that – opinions. Be sure to do your own research for your own particular circumstances or higher a professional advisor.

At the time of writing this post, the author does have a position in ODFL.

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