Old Dominion Freight LinesODFL

Morningstar Rating

Stock Research and Analysis

by Anthony Dayrit

Old Dominion Freight Lines' focus on increasing freight density and improving its operating ratio has earned some of the highest margins among public U.S. less-than-truckload (LTL) carriers. That said, high asset intensity, exposure to cyclical demand, Read more

Bulls Say

Old Dominion's nonunion labor force gives employees flexible work functions, allowing them to execute driving and dock functions more efficiently than rival union peers.

Old Dominion has a solid track record of increasing freight density and improving key operating metrics, leading to an increase in profitability--margins have increased from around 6% in 1998 to around 9% in recent years.

Old Dominion possesses a diverse client list. In 2008, the firm's largest customer accounted for only about 2.7% of overall revenue, and its 10 largest customers comprised 10% of the top line.

The company's limited exposure to highly cyclical sectors such as housing and automotive parts better insulates the firm from downturns in volume and revenue, which a number of its competitors experienced during the softening domestic freight market. Read more

Bears Say

Similar to other domestic truckers, Old Dominion's lack of international diversification (less than 5% of overall revenue) leaves the firm's fate in the hands of the cyclical U.S. economy.

The asset-intensity requirement of the LTL model generates tremendous operating leverage, and a sustained downturn in demand can quickly sap company profits.

While Old Dominion generates solid cash flow from operations, free cash flow has been negative for 10 of the last 14 years--a trend likely to continue until the company finishes building out its national network. Read more

Strategy

Old Dominion's primary goal is to increase freight density by completing its national network, which will require an additional 50-60 service centers. In order to improve performance, the company focuses Read more

Management

While we have a favorable view of Old Dominion's management team, investors should be cognizant of the Congdon family's strong influence over the company. Old Dominion was founded in 1939 by the late E.E. Congdon. Two of his sons serve as board members: Read more

Profile

Old Dominion is one of the largest asset-based less-than-truckload carriers in the United States, generating revenue of about $1.5 billion in 2008. The company carries out Read more

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