Did Old Dominion Freight Line, Inc. (ODFL)’s Q1 Performance Impress the Analysts?

We recently compiled a list of the 10 Best Logistics Stocks to Buy Now. In this article, we are going to take a look at where Old Dominion Freight Line, Inc. (NASDAQ:ODFL) stands against the other logistics stocks. You can also check out the 20 Biggest Logistics Companies in the US here.

The logistics industry is experiencing major developments, which bring both risks and opportunities. These changes are being driven by new technology, more competitors, changing customer expectations, and new business models. The global logistics market was valued at nearly $2.6 trillion in 2022. The market is projected to grow to $4.5 trillion by 2027, expanding at a compound annual growth rate of 11.5%.

Meanwhile, the US Freight and Logistics Market is predicted to reach a value of $1.67 trillion by 2030. The domestic market is seeing expansion due to an increase in e-commerce trade within the country. The e-commerce sector saw a growth of over 14% year-over-year in 2023 to reach $925 billion. The number of e-commerce users is predicted to increase from 264.5 million in 2021 to 289.9 million by 2027. There is rising demand for logistical services particularly among online retailers that do not operate physical stores and rely heavily on third-party warehousing.

Technology is reshaping how logistics companies function. Those who succeed will be the ones who can effectively use new technologies like data analytics and platform solutions. Data analytics is considered significantly more important in the transportation and logistics (T&L) sector over the next five years compared to other industries. Around 90% of experts in T&L prioritize these aspects, higher than the average of 83% seen across other sectors.

The potential for growth is high, yet the logistics industry has been slow to capitalize on it. According to a report by PWC, only 28% of T&L companies consider themselves 'advanced' in digitization. In comparison, 41% of automotive companies and 45% of electronics companies already view themselves as advanced. The main hurdle for transportation and logistics firms lies in developing a 'digital culture' and providing good training.

The majority of newcomers in the logistics sector are startups, and many of them aim to use new technology to establish their presence in the industry. So far, most of these startups operate in asset-light segments of the value chain, such as virtual freight forwarding. Private equity flows in digital logistics startups since 2011 have surpassed $150 million, whereas funding from legacy logistics companies is less than $10 million.

Our Methodology

To shortlist the best logistics stocks, we relied on Insider Monkey’s database of 920 hedge funds as of Q1 2024 to analyze the hedge fund sentiment for each stock. We picked the logistics stocks with the highest number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

A large fleet of freight trucks travelling down an interstate highway.

Old Dominion Freight Line, Inc. (NASDAQ:ODFL)

Number of Hedge Fund Holders: 38

Value of Hedge Fund Holdings: $448,280,000

Old Dominion Freight Line, Inc. (NASDAQ:ODFL) was founded in 1934 by Earl Congdon and Lillian Congdon. It is one of the largest less-than-truckload motor carriers in North America and offers other value-added services like container drayage, supply chain consultation, and truckload brokerage.

In the first quarter of 2024, the company's net income grew by 2.6% year-over-year to reach $292.3 million, while the net profit margin recorded a YoY increase of 1.3%. Meanwhile, the company recorded an EPS of $1.34, reflecting a 3.90% increase compared to the previous year.

Analysts recently assessed Old Dominion Freight Line, Inc. (NASDAQ:ODFL) and shared their 12-month price targets. The average price target came out to be $201.53, with a low estimate of $174 and a high estimate of $233. The average price target reflects an upside potential of around 15%. Old Dominion Freight Line, Inc. (NASDAQ:ODFL) has a consensus rating of “Buy,” based on 19 analysts’ recommendations.

Here’s what Bonhoeffer Capital Management said about Old Dominion Freight Line, Inc. (NASDAQ:ODFL) in its Q1 2024 investor letter:

“In remembrance of Charlie Munger, I listened to and read his investment speeches in Poor Charlie’s Almanac. His speech to the University of Southern California business school specifically dealt with the application of worldly wisdom to investment management and business. There were five ideas presented by Munger in that speech which are particularly relevant in the Bonhoeffer portfolio. First, over the long term, it’s hard for a stock to earn more than the underlying business earns. As an illustration of this principle, we examined two firms, Old Dominion Freight Line (NASDAQ:ODFL) and Warner Brothers/Discovery (WBD).

ODFL is an example of a growth stock whose value has been driven by increases in intrinsic value over time. From a commodity trucking business, ODFL has developed a franchise over time through consolidation. Using a DCF model with analyst estimated inputs, Morningstar estimated ODFL’s intrinsic fair values, which appeared overvalued, but stock price grew by 28% per year in-line with intrinsic value which grew by 28%/year which outperformed the index average of 12.7%/year. ODFL’s average RoE was 24.5% and increased thorough the period and ended in the 30%s. The chart below shows both the stock and an estimate of its intrinsic value over time.

These trends of growth and their effects on returns are reflected in the new investments we have invested in and those firms we have sold recently. We have sold most of our telecom and media firms (which have had flat to declining intrinsic values over time). These firms have been replaced by consolidating capital light distribution firms and specialized financial services firms (which have had increased intrinsic value over time) one of which is described below.”

Overall ODFL ranks 9th on our list of the best logistics stocks to buy. You can visit 10 Best Logistics Stocks to Buy Now to see the other logistics stocks that are on hedge funds’ radar. While we acknowledge the potential of ODFL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ODFL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.