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
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

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 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!