Here's Why Investors Should Retain Old Dominion (ODFL) Now
Old Dominion Freight Line, Inc. ODFL is benefiting from its pro-investor steps and solid LTL segment. However, an increase in capital expenditure is worrisome.
Factors Favoring ODFL
Old Dominion is gaining from the strong performance of the LTL segment owing to improved freight conditions. In 2021, revenues from the LTL services segment increased 30.7% on a year-over-year basis. In 2022, segmental revenues jumped 19.3%.
In 2022, LTL shipments and LTL revenue per shipment rose 0.8% and 18.3%, respectively. Despite the weakness pertaining to freight demand, LTL revenue per hundredweight (excluding fuel surcharges) improved 5.2% year over year in the first half of 2023.
Old Dominion’s efforts to reward shareholders through dividends and share buybacks are impressive. In 2022, it paid dividends of $134.48 million and repurchased shares worth $1,277.21 million.
Further, ODFL’s board of directors has raised its quarterly cash dividend by 33.3% to 40 cents per share, effective from the first quarter of 2023. Old Dominion paid out dividends worth $44.1 million and repurchased shares worth $141.7 million.
While announcing its second-quarter 2023 results, ODFL's board approved a new share repurchase program that authorizes the company to buy back up to $3 billion of its outstanding stock. This new repurchase program will begin after the completion of the existing $2 billion repurchase program, under which $376.9 million remains available and uncommitted as of Jun 30.
Key Risks
Even though capital expenditures are aimed at driving long-term growth, high capex may hurt the company in the near term. Capex was $225.1 million in 2020, $550.1 million in 2021 and $775.1 million in 2022.
Capital expenditures incurred in first-quarter 2023 were $234.7 million. For 2023, ODFL anticipates its aggregate capital expenditures to be approximately $700 million.
Zacks Rank
ODFL currently carries Zacks Rank #3 (Hold).
Key Picks
Some better-ranked stocks for investors interested in the Zacks Transportation sector are GATX Corporation GATX and Triton International Limited TRTN.
GATX, which presently carries a Zacks Rank #2 (Buy), has strengthened its railcar leasing operations. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
For third-quarter and full-year 2023, GATX’s earnings are expected to register 36.6% and 14.3% growth, respectively, on a year-over-year basis.
Triton, which currently carries a Zacks Rank #2, is benefiting from its consistent efforts to reward shareholders through dividends and share repurchases.
Triton has an impressive liquidity position. Its current ratio (a measure of liquidity) was 3.83 at the end of second-quarter 2023. A current ratio of more than 1 often indicates that the company will be easily paying off its short-term obligations.
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Old Dominion Freight Line, Inc. (ODFL) : Free Stock Analysis Report
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