U.S. Markets closed

Why Old Dominion Freight Line, Inc. (NASDAQ:ODFL) Is A Financially Healthy Company

Simply Wall St

Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!

With a market capitalization of US$11b, Old Dominion Freight Line, Inc. (NASDAQ:ODFL) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high liquidity, which means there's plenty of stocks available to the public for trading. In times of low liquidity in the market, these firms won’t be left high and dry. They are also relatively unaffected by increases in interest rates. Today I will analyse the latest financial data for ODFL to determine is solvency and liquidity and whether the stock is a sound investment.

Check out our latest analysis for Old Dominion Freight Line

ODFL’s Debt (And Cash Flows)

ODFL's debt levels surged from US$45m to US$114m over the last 12 months , which includes long-term debt. With this rise in debt, the current cash and short-term investment levels stands at US$281m , ready to be used for running the business. Additionally, ODFL has generated cash from operations of US$895m during the same period of time, leading to an operating cash to total debt ratio of 785%, meaning that ODFL’s debt is appropriately covered by operating cash.

Can ODFL meet its short-term obligations with the cash in hand?

Looking at ODFL’s US$358m in current liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.19x. The current ratio is the number you get when you divide current assets by current liabilities. For Transportation companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

NasdaqGS:ODFL Historical Debt, May 31st 2019

Can ODFL service its debt comfortably?

A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. A ratio below 40% for large-cap stocks is considered as financially healthy, as a rule of thumb. With debt at 4.1% of equity, ODFL may be thought of as having low leverage. ODFL is not taking on too much debt commitment, which may be constraining for future growth.

Next Steps:

ODFL’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near-term obligations, which isn't a big surprise for a large-cap. Keep in mind I haven't considered other factors such as how ODFL has been performing in the past. I recommend you continue to research Old Dominion Freight Line to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for ODFL’s future growth? Take a look at our free research report of analyst consensus for ODFL’s outlook.
  2. Valuation: What is ODFL worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether ODFL is currently mispriced by the market.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.