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Should Investors Retain ODFL Stock Despite its Higher Valuation?

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Key Takeaways

  • ODFL supports shareholders through dividends and buybacks while maintaining a low debt profile.
  • Pricing discipline adds strength, but weak freight demand weighs on the company
  • Driver shortages and economic uncertainty further pressure ODFL's performance.

Old Dominion Freight Line, Inc. (ODFL - Free Report) looks highly unattractive from a valuation standpoint. Considering the forward 12-month price-to-sales ratio (P/S-F12M), ODFL has a forward 12-month P/S-F12M of 5.69X compared with 1.77X for the industry.

ODFL P/S Ratio (Forward 12 Months) Vs. Industry

Zacks Investment Research
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ODFL has a Value Score of F.

Now, the question is whether it is worth buying, holding, or selling the ODFL stock at current prices. Let us delve deeper to find out.

Factors Working in Favor of ODFL Stock

ODFL’s disciplined approach to pricing is highly commendable. The company’s cost-based approach to pricing enables it to retain customers and supports tonnage even in times of weak demand. This is borne out by the LTL revenue per hundredweight indicator (a commonly used indicator for general pricing trends in the industry), which for ODFL improved 2.4% in 2024 despite demand weakness.

Old Dominion’s solid balance sheet increases financial flexibility. The company ended first-quarter 2025 with cash and equivalents of $97 million, higher than the current debt level of $20 million. This implies that the company has sufficient cash to meet its current debt obligations. Meanwhile, long-term debt level has decreased to $40 million (which translates into a debt-to-capitalization of 1.4%) at the end of first-quarter 2025 from $60 million (which translates into a debt-to-capitalization of 1.8%) at first-quarter 2024-end.

Long-Term Debt to Capitalization

Zacks Investment Research
Image Source: Zacks Investment Research

A strong balance sheet enables the company to reward shareholders with dividends and share repurchases. As a reflection of its shareholder-friendly stance, ODFL paid dividends of $175.1 million and repurchased shares worth $453.6 million in 2023, despite the weakness pertaining to freight demand. During 2023, ODFL's board approved a new share repurchase program that authorizes the company to buy back up to $3 billion of its outstanding stock.

During 2024, ODFL paid out dividends worth $267.6 million and repurchased shares worth $967.3 million. During first-quarter 2025, ODFL paid dividends worth $59.5 million and repurchased shares worth $201.1 million. Such shareholder-friendly initiatives should boost investor confidence and positively impact the bottom line.

ODFL Stock's Price Performance

Shares of ODFL stock have plunged 9.3% so far this year compared with the transportation-truck industry’s 17.3% decline. However, ODFL’s price performance compares favorably with that of industry players such as J.B. Hunt Transport Services (JBHT - Free Report) and Knight-Swift Transportation Holdings Inc. (KNX - Free Report) within the same time frame.

ODFL Stock YTD Price Comparison

Zacks Investment Research
Image Source: Zacks Investment Research

Risks Weighing on ODFL Stock

Macroeconomic concerns are leading to a tough freight environment. ODFL is being hurt by reduced demand for freight services. Due to the weakness in freight demand, shipment volumes and rates are low. The lackluster revenues, along with lingering supply chain issues, are affecting the operating ratio (operating expenses as a % of revenues), which deteriorated from 72% in 2023 to 73.4% in 2024 despite ODFL's cost-cutting efforts.

The still-high inflation reading continues to hurt consumer sentiment and growth expectations. The truck industry, of which Old Dominion is an integral part, has been persistently battling a driver shortage for several years. As old drivers are retiring, trucking companies are finding it difficult to find new drivers to take their place since the low-paying job mostly does not appeal to the younger generation.

How Should Investors Approach ODFL Stock?

It is understood that ODFL stock is currently unattractively valued. Moreover, ODFL is suffering from revenue weakness as geopolitical uncertainty and high inflation continue to hurt consumer sentiment and growth expectations. The increase in inflation in the past few months shows that we are not yet out of the woods as far as inflation is concerned.

Despite the headwinds, we advise investors not to sell ODFL stock now due to its cost-based approach to pricing, which enables ODFL to retain customers and supports tonnage even in times of weak demand. ODFL’s solid balance sheet allows it to reward shareholders through dividends and share buybacks. Such shareholder-friendly moves boost investor confidence and positively impact the company's bottom line.

We advise investors to wait for a better entry point. For those who already own the stock, it will be prudent to stay invested. The company’s current Zacks Rank #3 (Hold) justifies our analysis. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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