When I last wrote about Old Dominion (NASDAQ:ODFL)
in December of 2015, I was concerned that a slowdown in the broader
U.S. economy was going to weigh on short-term sentiment of this
top-notch less-than-truckload (or LTL) carrier. For about a month or so,
that did in fact happen, with the shares dropping about 20% to their
mid-January lows. Then the industrial rally hit, taking the shares back
above $70, before cooling down into summer ahead of yet another small
recent rally. All told, the shares are about 2% higher than they were at
the time of that last piece - a little worse than Saia (NASDAQ:SAIA), but better than quite a few other peers/comps.
All
of that up and down is a pretty good reflection of what seems to be
going on in the economy. There are definitely areas of weakness, as
manufacturing-heavy MRO distributor MSC Industrial (NYSE:MSM) highlighted recently,
but it also seems to be true that the economy is not careering toward
disaster. For truckers, it has been messy. The overall upward trend from
2014 is still in place, but there have been some tough months along the way, and the second quarter is not shaping up to be too pretty.
Stock
opportunities like Old Dominion are why a lot of professional investors
and analysts are grey before age 40. On the positive side, Old Dominion
is probably the best-run trucking company out there (at least in the
LTL space) and it still has room to grow to over 10% national share and
improve its margins even further. It's also trading below its historical
average EV/EBITDA multiple. On the negative side, the second quarter is
probably going to be ugly on both a revenue and cost/operating leverage
basis, and I don't think a big volume/tonnage rebound is in the cards
until after this year.
Cyclical stocks like Old
Dominion can get very weak during the doldrums, even while everybody
acknowledges that better days will come again and the company will do
well then. I find the long-term valuation pretty appealing, but this
might be the sort of stock to buy in pieces (dollar-cost averaging) if
you're concerned about the economy over the next six to 12 months.
Continue here:
Old Dominion Navigating A Bumpy, Pockmarked Road
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