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Here's Why Old Dominion is a Must-Add to Your Portfolio

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Old Dominion Freight Line’s (ODFL - Free Report) efforts to reward shareholders through dividends and share buybacks are impressive. In the first half of 2020, the company bought back shares worth $306.8 million and paid out dividends of $35.9 million. In July, the company's board of directors declared a quarterly cash dividend of 15 cents per share. After giving effect to the three-for-two stock split, announced in March 2020, this dividend represents a 32.4% increase over the dividend paid in September 2019.

Additionally, through consistent efforts, Old Dominion significantly reduced its debt levels. From a total debt of around $250 million in 2008, its debt has been lowered to $78.4 million at the end of second-quarter 2020. The company’s total-debt-to-total-capital ratio at the end of the second quarter was pegged at 0.05, comparing favorably with the figure of 0.13 for its industry. Additionally, the company’s cash and cash equivalents at the end of the second quarter stood at $518.7 million, way above the current maturities of long-term debt figure of $45 million, implying that the company has sufficient cash to meet its current debt obligations.

Consistent improvement in Old Dominion’s operating ratio (operating expenses as a percentage of revenues) is another positive. This key measure of efficiency improved to 81.4% in the first quarter of 2020 from 82% in the year-ago quarter due to lower operating expenses. Despite decline in revenues in the second quarter due to coronavirus-induced freight softness, operating ratio improved 10 basis points to 77.8%. At the end of first-half  2020, the metric stood at 79.7%, compared with 79.9% at the end of the first six months of 2019. Notably, lower the value of this metric, the better.

Owing to these tailwinds, shares of the company have significantly outperformed its industry so far this year.


 

The optimism surrounding the stock is evident from the Zacks Consensus Estimate for 2020 earnings being revised upward by 8.2% in the past 60 days.

In light of these positives, we believe investors should grab this stock for their portfolios, as is suggested by its Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Other Key Picks

Some other top-ranked stocks in the broader Transportation sector are Air Lease Corporation (AL - Free Report) , Expeditors International of Washington, Inc. (EXPD - Free Report) and FedEx Corporation (FDX - Free Report) , each sporting a Zacks Rank of 1.

The Zacks Consensus Estimate for Air Lease’s 2020 earnings has been revised upward by 3.3% in the last 60 days.

Meanwhile, shares of Expeditors and FedEx have rallied more than 25% and 78%, respectively, in a year’s time.

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