Gene Marcial's Stock Picks November 1, 2009, 8:41PM EST

Marcial: Old Dominion, a Trucker for the Long Haul

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BW's Gene Marcial

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consolidation could lead to market share

Old Dominion stands to be the "largest benefactor" of any jump in freight volume when the recovery gains more traction, says John Barnes, transportation analyst at RBC Capital Markets, who rates the stock outperform. And if any consolidation in the industry occurs, he says, Old Dominion will be a big winner, as it's well-positioned to capture more market share. He is referring to speculation that YRC Worldwide (YRCW), operator of the Yellow, Roadway, and New Penn lines, which posted a third-quarter loss on Oct. 30, may file for Chapter 11 bankruptcy protection.

YRC CEO William D. Zollars tried to squelch such speculation. He told analysts in a conference call on Oct. 30 that the company, which Bloomberg reports cut about 900 more workers in the third quarter, will "right-size itself" by next year. He said it is in discussions with some bondholders that would allow the company to get access to more cash. "I don't think there's anything that would make us think we can't be back there at some point," Zollars said. The economic recovery is a key, he says, but longer term, "we think there is no reason we won't get back in improved financial condition." A YRC spokeswoman told BusinessWeek there's no reason for filing for bankruptcy and that "it definitely won't happen."

At any rate, Stephens' analyst Waldo says that in the event YRC "fails" and files for Chapter 11 reorganization, Old Dominion should be one of the major beneficiaries. He figures it would provide a big boost to Old Dominion's earnings next year, and profits in 2010 would definitely exceed his current estimate of $1.35 a share. His present estimate for 2009 is 93¢, down from 2008's $1.84.

Regardless of what happens to YRC, analysts are betting on Old Dominion to be a big winner in an economic recovery. "We continue to view Old Dominion as the preferred way to play an eventual recovery," says analyst Jon A. Langenfeld of investment firm Robert W. Baird, who rates the stock outperform.

Some large U.S. institutional investors are also betting on Old Dominion for the long run, including Barclays Global Investors, which owns 5.1%, and Fidelity Management with 4.5%. The Congdon family owns the largest block of company stock, with a stake of about 32%. CEO David Congdon owns 5.6%. "With the help of an able management team, through tough and good times we have performed very well," he says.

Unless otherwise noted, neither the sources cited in Gene Marcial's Stock Picks nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Marcial writes the Inside Wall Street column for BusinessWeek. In 2008, FT Press published the book Gene Marcial's 7 Commandments of Stock Investing.