Earnings

Critical Comparison: YRC Worldwide Inc. (YRCW) vs. Old Dominion Freight Line, Inc. (ODFL)

YRC Worldwide Inc. (NASDAQ:YRCW) shares are down more than -29.83% this year and recently increased 4.78% or $0.46 to settle at $10.09. Old Dominion Freight Line, Inc. (NASDAQ:ODFL), on the other hand, is down -1.07% year to date as of 02/09/2018. It currently trades at $130.14 and has returned -10.30% during the past week.

YRC Worldwide Inc. (NASDAQ:YRCW) and Old Dominion Freight Line, Inc. (NASDAQ:ODFL) are the two most active stocks in the Trucking industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.

Growth

Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Comparatively, ODFL is expected to grow at a 16.73% annual rate. All else equal, ODFL’s higher growth rate would imply a greater potential for capital appreciation.



Profitability and Returns

Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 24.82% for Old Dominion Freight Line, Inc. (ODFL). YRCW’s ROI is 20.90% while ODFL has a ROI of 15.40%. The interpretation is that YRCW’s business generates a higher return on investment than ODFL’s.

Cash Flow 




Earnings don’t always accurately reflect the amount of cash that a company brings in. YRCW’s free cash flow (“FCF”) per share for the trailing twelve months was -1.10. Comparatively, ODFL’s free cash flow per share was +0.57. On a percent-of-sales basis, YRCW’s free cash flow was -0.75% while ODFL converted 1.57% of its revenues into cash flow. This means that, for a given level of sales, ODFL is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. YRCW has a current ratio of 1.40 compared to 1.40 for ODFL. This means that YRCW can more easily cover its most immediate liabilities over the next twelve months.

Valuation

YRCW trades at a forward P/E of 5.21, and a P/S of 0.07, compared to a forward P/E of 19.34, a P/B of 5.13, and a P/S of 3.23 for ODFL. YRCW is the cheaper of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. YRCW is currently priced at a -46.89% to its one-year price target of 19.00. Comparatively, ODFL is -6.26% relative to its price target of 138.83. This suggests that YRCW is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.20 for YRCW and 2.70 for ODFL, which implies that analysts are more bullish on the outlook for ODFL.

Risk and Volatility

Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. YRCW has a beta of 4.00 and ODFL’s beta is 1.23. ODFL’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. YRCW has a short ratio of 2.38 compared to a short interest of 3.22 for ODFL. This implies that the market is currently less bearish on the outlook for YRCW.

Summary

YRC Worldwide Inc. (NASDAQ:YRCW) beats Old Dominion Freight Line, Inc. (NASDAQ:ODFL) on a total of 9 of the 14 factors compared between the two stocks. YRCW generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, YRCW is the cheaper of the two stocks on an earnings, book value and sales basis, YRCW is more undervalued relative to its price target. Finally, YRCW has better sentiment signals based on short interest.

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