Deutsche Bank Downgrades Old Dominion, Projects 20% Downside

Old Dominion Freight Line ODFL reported better-than-expected earnings Oct. 26, with another quarter of strong earnings growth.

The Analyst

Deutsche Bank's Amit Mehrotra downgraded Old Dominion Freight Line from Hold to Sell and lowered the price target from $119 to $101.

The Thesis

The stock is among the most expensive in the transportation sector on a relative value basis, trading at 25 times the next 12 months' earnings, Mehrotra said. (See Mehrotra's track record here.) 

The stock price fully capitalizes Old Dominion's strong performance, and it is not discounting moderating tonnage and incremental margins, the analyst said. 

Deutsche's price target is based on 17 times 2019 EPS and implies that the stock has around 20 percent downside potential. Mehrotra said he sees positive earnings revisions as limited and doesn't see anything secular to warrant structurally higher valuation.

The Price Action

Old Dominion Freight Line is trading more than 1 percent higher Monday, along with the rest of the market. It has gained 60 percent since mid-April, when it bottomed at $80.56.

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