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

Landstar’s First Quarter of 2013 (1Q13) earnings performance met reduced expectations but management’s soft guidance for 2Q Earnings Per Share (EPS) was  short of the consensus estimates by 8-10%. The Street has reduced 2Q13 expectations for load growth to -1.0% from +2% given management’s commentary on April volumes. Moreover, muted expansion of the sales agent pool, a key driver of incremental revenue opportunities, will likely temper revenue growth. The more modest top-line assumption leads to slightly lower operating margins. The margin expansion estimates in 2014-2015 have been toned down to 100basis points(bp)/40bp, from 160bp/80bp.

Historically, in such circumstance, C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) was able to pass along higher freight rates to shippers but that has changed since 2007-2008. Currently, the stock is down 13% for the year. There have been a few reasons why the stock price of CH Robinson has languished:

1) EPS growth has moderated from mid teens to high single digits.

2) Net revenue margins have been trending lower since 2009

3) Concerns that the model is broken remain a hot topic; Many believe that the broker model is no more profitable. However, Goldman Sachs believes that the model is not broken – it is just that the industry is facing lower margins due to increased competition from new entrants as well as existing trucking companies diversifying into truck brokerage; e.g. JB Hunt

Final word

Improving fundamentals in the trucking industry have provided investors with yet another investing option. However, not all truckers are expected to benefit from the situation: truck asset owners are expected to outperform truck brokers. Old Dominion Freight Line (NASDAQ:ODFL) remains the best name in the industry.

Zain Abbas has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Zain is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article One Trucking Name to Buy, Two to Sell originally appeared on Fool.com and is written by Zain Abbas.

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