It’s a business with a large amount of green spread all around its economic toughness and profitability tables. But the valuation ratio is in the dumps. What is a value trader to believe?
The business is Aged Dominion Freight Strains Inc. (NASDAQ:ODFL), a person of the greatest trucking organizations in the United States. A lot more particularly, it is a considerably less-than-truckload carrier, hauling for prospects that really don’t have masses big plenty of to fill a freight-truck trailer.
As these types of, it competes with organizations these types of as FedEx Freight (NYSE:FDX) and UPS Freight (NYSE:UPS). Aged Dominion has documented it is the 3rd-most significant carrier in the nation by revenue, but doesn’t specify which organizations it trails. My analysis implies the two greater competition are FedEx Freight and YRC Throughout the world (NASDAQ:YRCW). There are also countless numbers of more compact competition, especially in regional and regional markets.
As an LTL business, it has large fastened costs, not only for vehicles but also for the real estate and support facilities it wants.
To handle these types of fastened costs, a business wants a person or extra of these a few elements: robust earnings, robust cash stream or a weighty credit card debt load. The economic toughness table higher than implies Aged Dominion does not have a lot of a credit card debt load.
This chart shows how the remaining two elements, earnings per share and functioning cash stream per share, had grown in the ten decades prior to the close of 2019:
Now, distinction that with the ten-yr lengthy-phrase credit card debt and cash lease obligations chart (there are no cash lease obligations, so the chart refers to only lengthy-phrase credit card debt):
What we are viewing is a business that has taken an ax to its credit card debt load, even though developing its earnings and functioning cash stream. Offered that the 2010s have been a 10 years of very low curiosity fees, Aged Dominion has resisted the entice of leverage and cleaned up its balance sheet.
That’s the form of management value buyers like to see, but will the business maintain up to additional scrutiny?
Because Aged Dominion is a Buffett-Munger Screener inventory, we can evaluate it using the 4 standards demanded to attain Buffett-Munger standing: predictability of revenue and earnings development, a aggressive gain, little or no credit card debt and a PEG/PEPG ratio showing the inventory is undervalued.
Aged Dominion gets a 4 out of 5-star score for predictability. This chart shows revenue per share and earnings per share for the ten decades ending Dec. 31, 2019:
Can it carry on to mature in the intensively aggressive trucking sector? It ought to be capable to as it noted in its May trader presentation, it is investing substantial sums again into its business:
One particular evaluate of aggressive gain is observed in the margins a business with reliable and substantial margins can manage or even mature its price ranges. As this