Old Dominion Freight Line (ODFL), C.H. Robinson Worldwide, Inc. (CHRW): One Trucking Name to Buy, Two to Sell

Page 1 of 2

Improving fundamentals for the trucking industry have attracted a lot of attention from investors. Favorable market dynamics are at play that support improving returns and mid-teen earnings growth on the back of incremental margin expansion from modest tonnage growth, pricing gains, and relatively benign unit costs.

However, this theme does not present a straightforward investing idea. Within the trucking industry, we have two main types of players: asset owners and truck brokers. The question is: Which is better exposed to improving fundamentals?

The difference

For those who haven’t been following the trucking industry you might not have an idea about the difference between these two types.

Asset owners like Old Dominion Freight Line (NASDAQ:ODFL) own their own trucks which are used for transportation purposes.

On the other hand, incumbent truck brokers do not own trucks; they just earn commissions by connecting self-employed truckers who own trucks with shipping customers. Prime examples of pure-plays on this model are Landstar System, Inc. (NASDAQ:LSTR) and C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW). There are many other truckers like J.B. Hunt and Knight Transportation that have both asset-based truckload shipping segments and  non-asset based truck brokerage segments.

Old Dominion Freight Line (NASDAQ:ODFL)Credit: Old Dominion Freight Line (NASDAQ:ODFL)

In these circumstances, common sense suggests that asset owners, by the virtue of owning their own trucks, will outperform the truck brokers given that they are more operationally leveraged to the industry cycle which is in its early stages. Moreover, truck brokers face ongoing competition from new entrants which are hampering pricing and dampening earnings growth for them.

Apart from that every company has its own secular growth/decline story. Let’s have a look at it:

The top pick in the trucking sector

For many analysts out there at the Street, Old Dominion Freight Line (NASDAQ:ODFL) is believed to be the best company in the trucking industry.

The stock is currently operating at a multiple of 20 times earnings. Though this seems expensive, but the multiple is justified given the strong upward momentum in the company’s margins. Not only this, many believe that the company is poised to improve its profitability given that it is experiencing increased density across its network by gaining share from peers. Moreover, the company has been focused on inward retained earnings rebuilding by adjusting its cost structure while trying to raise prices. This can also mean favorable re-rating of stock’s multiple.

Which truck brokers to lose?

As already mentioned, the truck brokers are expected to under-perform given high level of competition in the market. Landstar System, Inc. (NASDAQ:LSTR) and C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) are expected to lose the most.

Page 1 of 2

Dividend Stock Alert - Billionaire Robbins' Top Dividend Idea With 70% Upside Potential

Get Paid 3.5% Per Year While Waiting For The Stock Appreciate 70%

Larry Robbins' Glenview Capital Opportunity Fund returned 101.7% in 2013 and Robbins personally made $750 million. The same fund returned 25.3% in 2014. In this FREE REPORT we will share Robbins' top dividend idea that yields 3.5% and has been increasing its dividends for 39 consecutive years. Robbins thinks the stock has the potential to appreciate 70%.

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Click here to Read Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 74 percentage points in 2.5 years. Our beta is only 1.2 (download a FREE newsletter and see the details inside)

Lists

Best Selling Magazines in the World

Shortest People in History

The Most Celebrated Holidays in the World

Most Expensive Handbag Brands in the World

Top Selling Comic Book Issues of this Century

The Most Powerful Women in Politics

Best Paid DJs

Most Rebellious Female Artists

Best Paid TV Actresses of 2014

Best Paid Actors of 2014

Most Expensive Horses in the World

Tallest People Ever

Most Encouraging Feminist Celebrities

Best Paid Supermodels of 2014

Top 10 Suburbs for Retirement in 2015

10 Wealthiest Cities in America

Top 10 TED Talks for Entrepreneurs

Best TED Talks on Education

25 Most Dangerous Places to Live in America

Top 10 Ski Resorts in the United States – 2014 List

Top 10 Most Remote Places in the World

Most Visited Museums in the United States

Wealthiest Photographers in the World

Most Famous Gay Athletes

The World’s Most Famous Circuses

Best Hair Stylists

Most Popular NASCAR Drivers

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!