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Old Dominion Freight Line, Inc. (NASDAQ:ODFL) analysts shares are trading higher today. BMO Capital analyst Fadi Chamoun initiated coverage with an Outperform rating and a price target of $210.
The analyst writes that ODFL has consistently been one of the top three performing transport stocks across the past three freight cycles, led by favorable LTL industry conditions, a distinctive and high-performing culture, and exceptional execution.
Chamoun expects the LTL industry to gain from enduring favorable trends such as the closure of YELL, the potential resurgence of near-shoring in manufacturing, and its position as the optimal middle-mile solution amidst decreasing e-commerce delivery times.
Over the last decade, ODFL’s free cash flow has grown at a 29.3% CAGR, with shipment and revenue growth. Operating ratio improved by 1,350 basis points, and ROIC doubled to over 30% in 2023, writes the analyst.
Chamoun anticipates volume, price, and cost dynamics to drive ODFL’s operating ratio below 70%, reaching 67% by 2028, with incremental margins in the range of 40%-45%.
According to the analyst, this level of margin improvement is feasible as ODFL can maintain at least a 100 basis point spread between unit revenues and unit costs within its roughly 30% fixed-cost network.
However, prolonged freight downturns could impact this outlook, while tight supply/demand conditions could accelerate margin enhancement, says the analyst.
The analyst estimates EPS of $5.98 (vs. $6.09 est.) for FY24, $7.02 (vs. cons. $7.20) for FY25, and $8.16 (vs. street view of $7.91) for FY26.
Investors can gain exposure to the stock via First Trust S&P 500 Diversified Dividend Aristocrats ETF (BATS:IYT) and ProShares Trust ProShares Supply Chain Logistics ETF (NYSE:SUPL).
Price Action: ODFL shares are up 2.69% at $176.49 at the last check Wednesday.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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