Old Dominion Freight Line Set For Strong Growth Amid Favorable LTL Trends, Says Analyst

Zinger Key Points
  • BMO Capital analyst Fadi Chamoun initiated coverage with an Outperform rating and a $210 price target..
  • Chamoun highlights ODFL's strong performance in the LTL industry, execution, and free cash flow growth.

Old Dominion Freight Line, Inc. ODFL analysts shares are trading higher today. BMO Capital analyst Fadi Chamoun initiated coverage with an Outperform rating and a price target of $210.

The analyst writes that ODFL has consistently been one of the top three performing transport stocks across the past three freight cycles, led by favorable LTL industry conditions, a distinctive and high-performing culture, and exceptional execution.

Chamoun expects the LTL industry to gain from enduring favorable trends such as the closure of YELL, the potential resurgence of near-shoring in manufacturing, and its position as the optimal middle-mile solution amidst decreasing e-commerce delivery times.

Over the last decade, ODFL’s free cash flow has grown at a 29.3% CAGR, with shipment and revenue growth. Operating ratio improved by 1,350 basis points, and ROIC doubled to over 30% in 2023, writes the analyst.

Chamoun anticipates volume, price, and cost dynamics to drive ODFL’s operating ratio below 70%, reaching 67% by 2028, with incremental margins in the range of 40%-45%.

According to the analyst, this level of margin improvement is feasible as ODFL can maintain at least a 100 basis point spread between unit revenues and unit costs within its roughly 30% fixed-cost network.

However, prolonged freight downturns could impact this outlook, while tight supply/demand conditions could accelerate margin enhancement, says the analyst.

The analyst estimates EPS of $5.98 (vs. $6.09 est.) for FY24, $7.02 (vs. cons. $7.20) for FY25, and $8.16 (vs. street view of $7.91) for FY26.

Investors can gain exposure to the stock via First Trust S&P 500 Diversified Dividend Aristocrats ETF IYT and ProShares Trust ProShares Supply Chain Logistics ETF SUPL.

Price Action: ODFL shares are up 2.69% at $176.49 at the last check Wednesday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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