Old Dominion Freight Line, Inc. ODFL continues to grapple with high capital expenditures, weakness in its main unit, LTL services and driver shortage issues.
Capital expenditures, though aimed at driving long-term growth, may hurt the company in the near term. Capex was $225.1 million in 2020, $550.1 million in 2021, $775.1 million in 2022 and $757.3 million in 2023. For 2024, ODFL anticipates its total capital expenditures to be approximately $750 million. Of the total, $350 million is anticipated to be invested in real estate and service center expansion projects, $325 million in tractors and trailers, and $75 million in information technology and other assets. The elevated capex may hurt the company's free cash flow generating ability.
Weakness in ODFL's main unit, LTL services, represents a huge concern. Segmental revenues declined 6% year over year in 2023. Due to lackluster revenues, the operating ratio in 2023 increased to 71.8% from 71.2% in 2022. A lower value of the metric is preferable.
The truck industry, of which Old Dominion is an integral part, has been persistently battling driver shortage for several years. As old drivers are retiring, trucking companies are finding it difficult to hire new drivers since the job primarily does not appeal to the younger generation.
Partly due to these headwinds, shares of ODFL, despite gaining 5% over the past three months, have underperformed the 6.5% rise of the industry it belongs to.
Image Source: Zacks Investment Research
On the flip side, ODFL’s consistent initiatives to reward shareholders through dividends and share repurchases are encouraging. Concurrent with the fourth quarter of 2023 earnings release, on Jan 31, 2024, ODFL’s management announced a 30% increase to its first-quarter 2024 dividend over the first quarter of 2023 payout. The new dividend of 52 cents per share is payable on Mar 20, 2024, to shareholders of record at the close of business on Mar 6. The dividend hike raises Old Dominion’s annualized cash dividend rate to $2.08 per share from $1.6. In 2023, ODFL paid out dividends worth $175.1 million and repurchased shares worth $453.6 million.
Zacks Rank and Stocks to Consider
Old Dominion currently carries a Zacks Rank #4 (Sell).
Some better-ranked stocks from the Zacks Transportation sector are GATX Corporation GATX and SkyWest, Inc. SKYW. Each stock presently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
GATX has an encouraging track record with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in three of the last four quarters (missing the mark in the remaining one). The average beat is 16.47%.
The Zacks Consensus Estimate for 2024 earnings has been revised 8.9% upward over the past 90 days. GATX has an expected earnings growth rate of 6.51% for 2024. Shares of GATX have gained 26% in the past year.
SkyWest's fleet-modernization efforts are commendable. The Zacks Consensus Estimate for SKYW’s 2024 earnings has improved 27.3% over the past 90 days. Shares of SKYW have surged 242.3% in the past year.
SKYW has an expected earnings growth rate of more than 100% for 2024. SKYW delivered a trailing four-quarter earnings surprise of 128.02%, on average.
Infrastructure Stock Boom to Sweep America
A massive push to rebuild the crumbling U.S. infrastructure will soon be underway. It’s bipartisan, urgent, and inevitable. Trillions will be spent. Fortunes will be made.
The only question is “Will you get into the right stocks early when their growth potential is greatest?”
Zacks has released a Special Report to help you do just that, and today it’s free. Discover 5 special companies that look to gain the most from construction and repair to roads, bridges, and buildings, plus cargo hauling and energy transformation on an almost unimaginable scale.
Download FREE: How To Profit From Trillions On Spending For Infrastructure >>Old Dominion Freight Line, Inc. (ODFL) : Free Stock Analysis Report
SkyWest, Inc. (SKYW) : Free Stock Analysis Report
GATX Corporation (GATX) : Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
