The pending end of SunTrust Banks Inc. as a corporate entity will be Old Dominion Freight Line Inc.’s gain in terms of an influential stock-market listing.
S&P Dow Jones Indices said Tuesday that Old Dominion will replace SunTrust in the S&P 500, beginning Monday.
BB&T Corp. is projected to complete its $30.3 billion purchase of SunTrust at midnight Friday to form Truist Financial Corp. — the sixth largest U.S. bank, with $463.7 billion in combined total assets and a nearly $73 billion market capitalization.
According to Investopedia, the S&P 500 measures the value of the stocks of the 500 largest corporations by market capitalization listed on the New York Stock Exchange or Nasdaq composite.
Old Dominion, a top-10 trucking company based in Thomasville, could not be immediately reached for comment about shifting to the S&P 500 from the S&P MidCap 400.
“Any time a company makes the move to the S&P 500 from the MidCap 400 it is a big deal because there is a lot more money at play by index funds following the S&P 500,” said Zagros Madjd-Sadjadi, an economics professor at Winston-Salem State University.
An S&P listing provides a corporation with additional exposure to mutual funds and exchange-traded funds.
Investopedia, an investing and financial education website, says both types of funds “consist of a mix of many different assets and represent a common way for investors to diversify.”
“There are key differences, though, in the way they are managed since exchange-traded funds can be traded like stocks, while mutual funds only can be purchased at the end of each trading day based on a calculated price.”
There were 8,059 mutual funds with a total of $17.71 trillion in assets as of December 2018. By comparison, there were 1,988 ETFs with $3.37 trillion in combined assets for the same period.
“This will give greater exposure for the firm, likely give Old Dominion greater access to capital markets for bond issuance, as well as more clout with state and national legislators on issues of importance to the transportation and logistics industries,” Madjd-Sadjadi said.
Tony Plath, a retired finance professor at UNC Charlotte, said Old Dominion will gain greater liquidity for its stock, “which means lower volatility and a zero liquidity premium that’s usually associated with lesser-traded and less widely-held stocks.”
“That translates into higher risk-adjusted returns for investors and a lower cost of equity capital for the company,” Plath said. “It gives the company that issues the stock greater prestige, since inclusion in the S&P Index is a sign of size, stature and importance within the domestic economy.”
Old Dominion’s share price fell $4.47, or 2.4%, to close Tuesday at $181.81. It issued a warning that its revenue per day decreased 3.2% as compared with November 2018.
“Our revenue results for November reflect the continued softness in the domestic economy,” Greg Gantt, Old Dominion’s president and chief executive, said, although he cautioned that its volume trends are “beginning to stablize.”
Bowman Gray IV, a local independent stockbroker, said the shift to the S&P 500 “will certainly reduce the float of public shares as there are several mutual funds and ETFs that track the S&P 500.”
“Beyond that, it really means nothing. I would not use this as a reason to buy or sell the stock.”
Old Dominion will be added to the S&P 500 Global Industry Classification Standard Trucking sub-industry index.