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Why Old Dominion (ODFL) is a Must-Add Stock to Your Portfolio

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Old Dominion Freight Line, Inc. (ODFL - Free Report) has been benefiting from LTL segment’s (accounting for bulk of the company’s top line) solid performance. Evidently, during the third quarter of 2018, the company’s revenues increased 21.2% owing to the respective 8.1% and 12.5% rise in LTL tons and LTL revenue per hundredweight. This uptrend is anticipated to continue into the fourth quarter, thereby driving growth.

The improving operating ratio (operating expenses as a percentage of revenues) scenario is another positive, which is expected to boost the company’s bottom- results going forward. Notably, the metric improved 180 basis points (bps), 220 bps and 280 bps, each in the first, second and third quarter of 2018. Further, adding to earnings growth is the amended tax law. The significant cut in corporate tax rate is leading to an increased cash flow and in turn, aiding the company’s bottom line. Another favorable factor is the provision of allowing capital expenditures to be tax-deducted in the year they are incurred.

The company’s efforts to reward shareholders through dividends and share buybacks are also impressive. This February, the company’s board of directors approved a 30% hike in quarterly cash dividend to 13 cents per share (or 52 cents annually). During the first nine months of the current year, Old Dominion returned $108.6 million to stakeholders by means of a combination of dividends and share repurchases. The company’s board also cleared a new buyback program this May. The new authorization, which commenced on May 23 following the expiration of the previous two-year buyback scheme, will run through June 2020 and the company can repurchase up to 250 million shares.

On the back of the above tailwinds, shares of the company have gained 6.8% in a year against the industry’s 3.3% decline.


 

The positivity surrounding the stock is further evident from the Zacks Consensus Estimate for current-quarter earnings being revised 4.8% upward in the last 60 days. Also, the consensus mark for full-year earnings moved 3.6% north over the same time frame.

These factors substantiate the company’s Zacks Rank #2 (Buy) and we believe, the time is ripe for investors to add this stock to their portfolios.

Other Key Picks

Some other top-ranked stocks in the broader Transportation sector are CSX Corporation (CSX - Free Report) , Air France-KLM SA (AFLYY - Free Report) and Spirit Airlines, Inc. (SAVE - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of CSX, Air France-KLM and Spirit Airlines have rallied more than 8%, 35% and 34%, respectively, in the past six months.

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