Old Dominion Freight Line (ODFL)'s True Worth: A Complete Analysis of Its Market Value
Old Dominion Freight Line Inc (NASDAQ:ODFL) experienced a daily loss of 2.66%, despite a 3-month gain of 33.26%. With an Earnings Per Share (EPS) (EPS) of 11.51, the stock appears to be modestly overvalued. This article delves into an extensive valuation analysis of ODFL, providing valuable insights for potential investors.
Company Introduction
Old Dominion Freight Line, the second-largest less than truckload carrier in the United States, operates over 250 service centers and possesses more than 11,000 tractors. The company has established itself as a disciplined and efficient provider in the trucking industry. With strategic initiatives focused on increasing network density and maintaining industry-leading service, ODFL's profitability and capital returns stand head and shoulders above its peers. As of September 08, 2023, the company's stock price stands at $421.25, with a GF Value of $331.95, indicating a modest overvaluation.
Summarizing GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The stock price of Old Dominion Freight Line, currently at $421.25 per share with a market cap of $46 billion, appears to be modestly overvalued according to the GF Value. This suggests that the long-term return of its stock is likely to be lower than its business growth.
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Financial Strength
Before investing in a company, it's crucial to assess its financial strength. Investing in companies with poor financial strength poses a higher risk of permanent loss. Old Dominion Freight Line, with a cash-to-debt ratio of 0.69, surpasses 59.51% of 936 companies in the Transportation industry. The company's overall financial strength is 9 out of 10, indicating strong financial health.
Profitability and Growth
Consistent profitability over the long term offers less risk for investors. Old Dominion Freight Line has been profitable for the past 10 years, with a revenue of $6 billion and an Earnings Per Share (EPS) of $11.51 over the past twelve months. Its operating margin is 28.58%, ranking better than 87.17% of 935 companies in the Transportation industry. The company's overall profitability is ranked 10 out of 10, indicating strong profitability.
Long-term stock performance is closely correlated with growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. Old Dominion Freight Line's average annual revenue growth is 17.6%, which ranks better than 76.87% of 908 companies in the Transportation industry. The 3-year average EBITDA growth is 28%, ranking better than 73.81% of 817 companies in the Transportation industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Old Dominion Freight Line's ROIC was 29.54, while its WACC came in at 11.59.
Conclusion
In conclusion, the stock of Old Dominion Freight Line appears to be modestly overvalued. The company's financial condition is strong, and its profitability is robust. Its growth ranks better than 73.81% of 817 companies in the Transportation industry. To learn more about Old Dominion Freight Line stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
