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Double-Digit Growth Continues To Propel Old Dominion

Stephen Simpson profile picture
Stephen Simpson


  • Old Dominion is prospering as freight demand expands, with above-average tonnage growth, healthy pricing, and ongoing margin leverage.
  • Management seems steadfast in sticking to what it does best; there are attractive growth opportunities for Old Dominion even without a clear pivot toward home delivery and other e-commerce niches.
  • Old Dominion's shares seem to be pricing in low-double-digit EBITDA growth; a reasonable expectation, but not one that seems to offer a lot of risk-adjusted upside.

Forget its top-level performance in the less-than-truckload (or LTL) sector, Old Dominion (NASDAQ:ODFL) is one of the better-run companies I've followed for the past decade-plus. Management sticks to what it does best, doesn't jeopardize the model just to please Wall Street in the short term, and continues to build the business for further growth. The only issue with that top-level performance is that it is no secret and Old Dominion's shares are seldom cheap outside of those cyclical downturns where the outlook for the sector is bleak.

Today is the opposite; demand for freight is expanding and Old Dominion is once again demonstrating that it can win share with service quality during such expansions. The shares are already pricing in double-digit EBITDA growth, and I think outperforming those expectations is going to be difficult. While I'd be very slow to sell Old Dominion if I already owned these shares, it's tough for me to argue for it as a buy at today's valuation.

The Trucks Are Rolling

Old Dominion has always been more skewed towards industrial and non-retail freight, and the economic expansion in the U.S. has fueled a sharp recovery in tonnage growth. From a year ago (the fourth quarter of 2016), quarterly year-over-year tonnage growth has improved from basically no growth to over 2%, to 6%, to 7%, and most recently to over 14%. Both weight and volume are growing and pricing growth has strengthened from the low single digits to the mid-single digits.

Old Dominion's growth isn't just the byproduct of a stronger overall market. In fact, many of its peers aren't reporting especially exciting tonnage numbers. Saia (SAIA) recently reported over 8% tonnage growth, but ArcBest (ARCB) saw a 5% contraction, while YRC Worldwide (YRCW) reported slight contraction

This article was written by

Stephen Simpson profile picture
Stephen Simpson is a freelance financial writer and investor.Spent close to 15 years on the Street (sell-side, buy-side, equities, bonds).

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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