Seeking Alpha: Old Dominion's Operating Environment Has Shifted

Maybe the nicest thing I can say about Old Dominion's (NASDAQ:ODFL) performance since my last update on this leading less-than-truckload carrier is that even in a rough patch for trucking, the company has continued to do better than most of its peers. The shares are down about 20% over the past nine months, but ArcBest (NASDAQ:ARCB), Saia (NASDAQ:SAIA), and Roadrunner (NYSE:RRTS) have all done notably worse, with YRC Worldwide (NASDAQ:YRCW) the only notable outperformer excluding M&A.

My prior positive view on Old Dominion was predicated on a healthy economy and continuing excellence in operation, and only the second of those has really materialized. I continue to believe it is the best-run trucking company out there (at least in the LTL space), but a softer industrial economy, reduced truckload spillover, and changing shipping patterns are creating notable headwinds. Although I believe the shares are trading at an interesting valuation today, the Street will likely want to see weight trends and economic activity improve before getting significantly more bullish.

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Old Dominion's Operating Environment Has Shifted

Seeking Alpha: Old Dominion's Performance Argues For Paying Up For Quality

It has been a while since Old Dominion (NASDAQ:ODFL) has looked cheap by conventional valuation standards, but then the company has logged a strong stretch of better-than-average performance. Almost a year ago, I thought that Old Dominion was a good stock to consider despite its valuation and the company's strong operating performance has led to better than 30% appreciation since then - well ahead of other trucking peers like Con-way (NYSE:CNW), ArcBest (NASDAQ:ARCB), YRC Worldwide (NASDAQ:YRCW), and Saia (NASDAQ:SAIA).

Old Dominion remains what it has been for some time - an exceptionally well-run trucking company that still has the opportunity to take share from less efficient rivals. The same is true on the valuation side, as this is a stock that is more challenging to argue is undervalued. Paying a low teens multiple to EBITDA doesn't seem unreasonable if expectations of mid-teens EBITDA growth prove accurate, but I can understand why some investors may hesitate to pay a premium for a company that is in a competitive, regulated, and cyclical industry.

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Old Dominion's Performance Argues For Paying Up For Quality

Seeking Alpha: Old Dominion Continues To Take Share

As I expected back in February, Old Dominion's (ODFL) fourth quarter was just a bump on the road and business has gotten back to normal. Normal is a very good thing for Old Dominion, as the company's superior service quality continues to fuel share gains and good cost control allows the company to thrive with relatively lower price increases than its competition. Old Dominion shares aren't cheap by standard valuation metrics, but I believe standard metrics may be a little too confining for a significantly above-average operator.

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Old Dominion Continues To Take Share

Seeking Alpha: A Small Skid At Old Dominion Isn't A Big Deal

Less than truckload (aka LTL) transportation company Old Dominion (ODFL) did something last week that it doesn't do often - it disappointed the Street and saw some margin erosion. Weather seems to have been a major contributing factor, though, and the company continues to show significantly better tonnage growth than its peers, while hauling that freight much more profitably. Old Dominion isn't exceedingly cheap, having risen another 15% since my last write-up, but it is still slightly undervalued and still an excellent stock for the long term.

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A Small Skid At Old Dominion Isn't A Big Deal

Seeking Alpha: YRC Worldwide Will Probably Survive, But Can It Thrive?

I've made no secret in the past that I think less-than-truckload trucking company Old Dominion (ODFL) is one of the best-run companies out there. In contrast, the largest less-than-truckload carrier, YRC Worldwide (YRCW), is very definitely *not* one of the best-run companies out there. With the shares trading at only a shadow of their former value and real concerns about whether the company can manage an upcoming liquidity squeeze, a lot of investors have written off YRC Worldwide.

I'm pretty much on board with that thinking. I am not all that certain that bankruptcy is inevitable. A pre-packaged bankruptcy filing could certainly become an option as the company struggles under the weight of over $1 billion in net debt, but I suspect that the Teamsters union is going to make a deal with YRC Worldwide similar to the one it granted Arkansas Best (ABFS) - a deal that gives the company meaningful wage and cost flexibility up front in exchange for profit-sharing down the line and the labor stability the company needs to renegotiate its debt.

I'm not saying that investors should pile into YRC Worldwide with the expectation of the better than 4x returns that Arkansas Best has delivered (and I'm definitely not investing my own money here!), but I'm very curious to see how the Street will weigh out the risks of YRCW failing to renegotiate its debt (and/or failing to secure concessions from the Teamsters) and its overall lack of impressive operating fundamentals.

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YRC Worldwide Will Probably Survive, But Can It Thrive?

Seeking Alpha: Expectations For Arkansas Best May Be Higher Than They Seem

National less-than-truckload (LTL) trucking company Arkansas Best (ABFS) has been one of the best turnaround stories of 2013, as a new Teamsters agreement with meaningful cost concessions gives the company a real chance to repair one of the worst cost structures in the industry. With that, the shares have rocketed up more than 200% this year, and 300% from the 52-week low.

Even with that major leap, it would seem that the company is not getting all its due. The shares trade at about 4.6x the current average EBITDA estimate for 2014, against a long-term average of about 4.5x and industry averages that often run in the 6x to 8x range. On the other hand, Arkansas Best could still be facing significant pension liabilities, and the company may find it difficult to meet some aggressive growth goals. All told, I'm intrigued by what Arkansas Best could become again, but it's for me to not still prefer the more richly-valued (but better-run) Old Dominion (ODFL).

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Expectations For Arkansas Best May Be Higher Than They Seem

Seeking Alpha: Old Dominion Isn't Done Yet

Earlier this year, I thought the Street's reaction Old Dominion's (ODFL) fourth quarter results offered investors a good opportunity to buy shares in this high-quality, growing trucking company. Since then, the shares are up about 30% - more than doubling the return of the S&P 500. Although that performance is more mixed relative to other trucking companies- better than Con-Way (CNW), but inferior to Arkansas Best (ABFS), YRC Worldwide (YRCW), and Saia (SAIA) - Arkansas Best and YRC have benefited from a major catch-up trade and still notably lag Old Dominion on a two-year comparison.

While valuation on the shares has moved up, I don't think the opportunity is over for Old Dominion or its shareholders. The company continues to gain share in the less-than-truckload industry, and I believe the company's combination of service quality, organic growth potential, and strong margin leverage can continue to deliver good returns.

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Old Dominion Isn't Done Yet

Seeking Alpha: A Stumble In Tonnage May Be An Opportunity At Old Dominion

Even the best-run companies occasionally trip, and that's likely the most important take-away from Old Dominion's (ODFL) fourth quarter results. While it was disappointing to see the company's operating ratio reverse for the first time in three years, nothing about what has made Old Dominion one of the best in the less-than-truckload (LTL) business has changed. Although trucking companies don't have the best reputations when it comes to free cash flow generation or returns on capital, I believe that Old Dominion is, and will be, the notable exception, and that this uncommon earnings miss could offer a narrow window of opportunity.

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A Stumble In Tonnage May Be An Opportunity At Old Dominion

Investopedia: Is Slowing Demand Just A Speed Bump For Old Dominion?

There are plenty of articles out there declaring the doom of trucking, as railroads and intermodal shipping take away the industry's lunch money (I should know, as I've written some of them). However it's important to remember at least two points. First, not all trucking is the same. Second, not all trucking companies are the same. Old Dominion (Nasdaq:ODFL) continues to demonstrate its credentials for "best trucking company in the biz," but investors could get another chance with this stock if economic uncertainties undermine demand in the fourth quarter.

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http://www.investopedia.com/stock-analysis/2012/Is-Slowing-Freight-Demand-Just-A-Speed-Bump-For-Old-Dominion-ODFL-FDX-UPS-CNW1026.aspx

Investopedia: Waiting To Back Up The Truck For Old Dominion

It's not usually a good idea to hang around and hope that a stock you sold too soon once before gives you a second chance. Nevertheless, I do find myself hoping that Old Dominion (Nasdaq:ODFL) gives me that second chance to buy shares in one of the best-run companies and best growth stories in the U.S. trucking industry (and perhaps the U.S. transport sector as a whole). Although this stock has done quite well already this year and valuation looks a little stretched, a pullback could change all of that overnight.

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http://www.investopedia.com/stock-analysis/2012/Waiting-To-Back-Up-The-Truck-For-Old-Dominion-ODFL-FDX-CNW-ABFS0920.aspx

Investopedia: Old Dominion Still In Overdrive

Whether it was a slight miss relative to consensus or post-earnings commentary from UPS (NYSE:UPS) management, Old Dominion (Nasdaq:ODFL) sold off on April 26, 2012 despite a solid report. This company remains one of the best stories in less-than-truckload shipping and a solid growth story. While the valuation is still a little high, investors ought to give this one a look.

Read more here: http://stocks.investopedia.com/stock-analysis/2012/Old-Dominion-Still-In-Overdrive-ODFL-CNW-YRCW-UPS0430.aspx

Investopedia: Old Dominion's Great Growth Story

Old Dominion (Nasdaq:ODFL) seems to be one of the exceptions. Old Dominion has long been a great growth story within a cyclical industry, and this quarter is another example of how not all trucking companies are alike. Although this is not an easy company to value, Old Dominion is gaining share and building a business that is getting increasingly attractive. 

There are some pretty sharp divisions among the transport stocks these days. Railroads have enjoyed a great run and air transport companies have seen a solid pickup in business, while ocean-going carriers have been struggling. With trucking it's a more complicated picture - the volume has been there, but pricing has been soft and many major haulers are struggling.

Solid Start to the Year 

Old Dominion has opened the year with 33% top line growth. Tonnage climbed over 20%, while a modest give-and-take between haul length (up 0.7%) and weight per shipment (down 0.6%). Pricing was rather strong as well; up over 11% as reported, and up more than 6% when stripping out the company's fuel surcharges.

Old Dominion has stood out in the past for its operating efficiency and that was true again this quarter. The company showed operating income growth of 132% and the company's operating ratio improved by nearly four full points from the year-ago level to 91. That stands in significant contrast to major carriers like Arkansas Best (Nasdaq:ABFS) and YRC Worldwide (Nasdaq:YRCW). One of the advantages to the Old Dominion model is its lower labor costs, and that held true this quarter - though these costs climbed nearly 23%, they were about 52% of revenue or more than 10% less than the share of revenue paid out by Arkansas Best. (For related reading, see Bad Times For Arkansas Best.)

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Old Dominion - Sometimes The Best Is Not Good Enough

I am a little late getting this analysis of Old Dominion (Nasdaq: ODFL) up, but I hope it is better late than never. ODFL is a stock I owned (profitably) years ago and still like to follow - I think it is hands down the best less-than-truckload (LTL) carrier out there. Nevertheless, being the best in your business does not necessarily mean the stock is worth buying.

It was a solid second quarter for ODFL. Revenue rose 16.5% to 368M, and handily beat the estimate of $359 million. This revenue was produced by a nice increase in tonnage (up over 13%), offset by a decline in fuel-adjusted pricing (down about 1%). That weak pricing environment is one of the big worries in this space - although ODFL has not matched smaller rivals in taking bad pricing just to keep the trucks running, they have not been able to escape it all together.

Where ODFL really shined this quarter was in its cost control. The company's operating ratio (basically the opposite of operating margin) improved more than 400 bp to 89.1%. Lower non-cash charges (mainly depreciation) helped a lot, but the company also saw quite a bit of improvement by holding down wage growth and compensation costs.

Management was a bit cautious about the second half of this year, and given the economic news that has come out this week that seems reasonable. I am not sure that LTL carriers like Old Dominion are any better "tells" on the economy than truckload carriers like Knight (NYSE: KNX) or Heartland Express (Nasdaq: HTLD), but it stands to reason that LTL would be tied more closely to the tenor of small business (since they cannot afford to send out whole truckloads at a time). Either way, I would not be surprised to see continued pricing weakness this year, though weakness in tonnage would definitely be a bad sign for the economy.

Trying to value Old Dominion and assess its future is pretty tricky. The company has spent most of the last decade building up its business. It takes somewhere around 250 - 300 service centers to operate a national LTL business, and Old Dominion started the year with about 210. So even though ODFL will always have to spend on new equipment (trucks, trailers, etc.), the big build-out is close to an end. That means cash flow leverage.

Also, even though ODFL is a rather efficient operator in the LTL space, they are not the top in all metrics. Rival Con-Way (NYSE: CNW) seems to produce considerably more revenue per service center than ODFL (about 2.5 to 1). Now, ODFL is ahead of the likes of Arkansas Best (Nasdaq: ABFS) and there may be idiosyncrasies with Con-Way that make a straight-up comparison misleading, but it still seems to me that ODFL can (and should) get more leverage out of their infrastructure. If they do that ... more cash flow.

So, all of that being said, I still run into a wall when it comes to evaluating ODFL on a cash flow basis. Even allowing for significant free cash flow leverage (free cash flow margin moving from a historical level of -3% to 6% over five years, with above-trend growth in the five years after that as well), I get a DCF-derived price that is about 10% below today's level. Turning to an alternative methodology, forward EV/EBITDA valuation, I get a target of $45.50 (using a 7x forward multiple). That is certainly better, but still not enough to excite me.

All in all then, Old Dominion is a good company that is priced like one. I might be interested if it pulled back 10-20%, but there is just not enough potential here to get me to buy.