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Analyst cuts Old Dominion Freight Line stock rating to In Line on earnings growth

EditorNatashya Angelica
Published 06/25/2024, 01:19 PM

Tuesday - Evercore ISI has downgraded Old Dominion Freight Line (NASDAQ:ODFL) stock from Outperform to In Line, adjusting the price target to $196 from the previous $225. The firm revised its outlook due to expectations of lower-than-anticipated earnings for the upcoming quarters and a valuation that now exceeds that of its peers, despite a forecasted earnings growth that lags behind that of competitors SAIA and XPO.

The change in rating comes after a period of highs and lows for Old Dominion Freight Line, with the firm noting that while demand prospects for the next 12 months look favorable compared to the previous year, the current consensus estimates for the third and fourth quarters of 2024 appear overly optimistic.

Analysts at Evercore ISI believe that these estimates do not adequately account for the seasonal rarity of margin improvement in the third quarter, especially in light of annual wage increases set for July.

Moreover, the report points to the likelihood of flat margin comparisons even with better volume projections for the next quarter. This assessment contributes to the rationale behind the downgrade and the reduced price target.

The transportation sector has been under scrutiny, particularly after the bankruptcy of Yellow (OTC:YELLQ), which significantly altered the capacity and pricing dynamics within the less-than-truckload (LTL) sector. Old Dominion Freight Line had previously benefited from these market changes following the upgrade to Outperform in May 2023.

The firm's analysis suggests that the stock is trading at a premium compared to its peer group. This is in contrast to the nearly 45% lower earnings per share (EPS) growth forecast for Old Dominion Freight Line next year when compared to the average forecast for its competitors, SAIA and XPO. With the anticipation of a downward revision in estimates across the sector, Evercore ISI has opted to take a more cautious stance on Old Dominion Freight Line shares.

In other recent news, Old Dominion Freight Line reported a 5.6% increase in revenue per day for May 2024, driven by a 1.5% rise in less-than-truckload (LTL) tons per day and an improvement in LTL revenue per hundredweight.

Moreover, the company's Board of Directors approved a 30% increase in its quarterly cash dividend following a two-for-one stock split completed in March 2024. Analysts have provided mixed reviews on the company's stock.

UBS reaffirmed a Neutral rating, while Susquehanna maintained a Positive rating but reduced the stock's price target from $245.00 to $210.00. Wells Fargo initiated coverage with an Underweight rating and a price target of $175, citing potential earnings risks.

BofA Securities revised its price target for Old Dominion, dropping it to $192 from $205, while maintaining a neutral stance on the stock. These are recent developments surrounding Old Dominion Freight Line.

InvestingPro Insights

As Evercore ISI adjusts its stance on Old Dominion Freight Line (NASDAQ:ODFL), investors may benefit from additional insights provided by InvestingPro. Notably, Old Dominion holds a stronger cash position than debt on its balance sheet, which could offer some resilience in uncertain economic times.

The company has a consistent track record of raising its dividend, with an increase for 7 consecutive years, signaling confidence in its financial stability and commitment to shareholder returns.

InvestingPro data highlights a market capitalization of $38.26 billion and a price-to-earnings (P/E) ratio of 31.04, which is slightly adjusted to 30.69 when considering the last twelve months as of Q1 2024. Although the company's revenue has seen a slight decrease of 5.17% over the last twelve months, Old Dominion's gross profit margin remains robust at 40.36%. Moreover, the firm's operating income margin stands at an impressive 27.94%, underscoring efficient operations.

While the stock is trading near its 52-week low and has experienced a significant price drop over the last three months, it is essential to consider that analysts predict profitability for the year, and the company has been profitable over the last twelve months.

For those interested in a deeper dive into Old Dominion's financial health, InvestingPro offers additional tips, including an assessment of the company's cash flow and liquidity metrics. Discover more InvestingPro Tips for Old Dominion at https://www.investing.com/pro/ODFL and take advantage of a special offer using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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