Old Dominion Freight Line is Thursday's IBD Stock Of The Day as the less-than-truckload freight leader looks poised to break out if the economy doesn't hit reverse. ODFL stock is near an early entry point after hitting an all-time high in early February.
The Thomasville, N.C., firm is the second-largest less-than-truckload, or LTL, firm with about 12% market share. It carries freight for customers that don't need a full truckload. Industrial customers account for about 60% of business and retail about 30%.
ODFL Weathers Downturn
On March 3, Old Dominion reported that revenue per day in February fell 2.9% vs. February 2022. That came as less-than-truckload, or LTL, tons per day fell 12.4%. However, pricing so far in Q1 is up 12.1% from a year ago, or 8.6% excluding fuel surcharges.
Pricing and a focus on efficiency have enabled Old Dominion to weather a downturn in its business while still churning out profits. On Feb. 1, Old Dominion posted Q4 EPS of $2.92, up a stronger-than-expected 21% from a year ago, even as revenue growth of 5.8% slightly undershot estimates.
ODFL's operating ratio, operating expenses as a percentage of revenue, improved to 71.2% in Q4 vs. 73.6% a year earlier.
IBD Stock Checkup shows that ODFL stock is ranked No. 1 in the Transportation-Truck industry group based on fundamental and technical factors. The trucking industry group is in the top tier of the market, ranked No. 12 among 197 industry groups based on price performance and momentum.
Inventory Cycle Upturn?
Now there are some signs that an economywide inventory correction may have run its course, which could allow ODFL stock to shift into higher gear.
On March 1, the Institute for Supply Management's manufacturing survey index indicated that customer inventories slipped further into too-low territory. "February saw customer inventories return to accommodative levels for future output growth potential," ISM chair Timothy Fiore said.
So far, signs point to at least a stabilization, if not a pickup, in the less-than-truckload freight business this spring.
Following Old Dominion's report on February operating metrics, Deutsche Bank analyst Amit Mehrotra wrote, "February may very well have represented trough tonnage for ODFL and the LTL sector as a whole."
Old Dominion CEO Greg Gantt noted on the Feb. 1 earnings call that freight flows typically lead other macro indicators when the economy comes out of a slowdown. He also noted that down cycles are typically "a year, 16 months."
"We kind of think that's what we've been (through) in this one."
ODFL Stock
ODFL stock fell 2.1% to 342.97 in Thursday's stock market action, as the whole market turned lower ahead of Friday's jobs report. ODFL stock fell below its 21-day line.
Old Dominion stock vaulted higher on its Feb. 1 Q4 report, hitting an all-time high of 381.81 the next day. ODFL stock is close to forming a new flat base with a 381.91 buy point.
However, the recent consolidation is almost like a handle on the end of a very long base dating back to December 2021. A break of the downtrend of this handle, with a move past Monday's high of 352.95, could offer an early entry point.
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