XPO stock maintains Buy rating at Benchmark amid margin improvement

Investing.com - Benchmark has reiterated its Buy rating on XPO (NYSE:XPO) with a price target of $140.00, citing the company’s progress in improving pricing and margins. The stock, currently trading at $135.84 with a market cap of $15.94 billion, has seen 13 analysts revise their earnings expectations upward for the upcoming period, according to InvestingPro data.

The firm expressed increased conviction in XPO’s ability to achieve best-in-class pricing and margins following second-quarter results and recent management meetings. Benchmark identified higher pricing and operating ratio improvement as key drivers for XPO’s long-term earnings growth. With an EBITDA of $1.22 billion in the last twelve months, XPO demonstrates strong operational performance, though InvestingPro analysis indicates the stock is trading above its Fair Value.

Since implementing its LTL 2.0 plan in the first quarter of 2022, XPO has improved labor productivity, reduced outsourced linehaul miles, and lowered damage claims ratios. These initiatives have resulted in a 470 basis point improvement in the company’s LTL operating ratio over two years, despite operating in a soft freight environment. The company maintains a solid financial health score of "GOOD" according to InvestingPro’s comprehensive analysis, which evaluates multiple financial metrics and market indicators.

Benchmark believes XPO can generate 40% incremental margins during a volume upturn, potentially higher given ongoing productivity initiatives. The company is targeting an operating ratio in the high 70% range by 2027, which assumes modest volume growth.

With lower capital expenditures as a percentage of LTL revenue expected over the next few years, Benchmark projects XPO could generate over $2 billion in free cash flow, which the company plans to deploy through a mix of share buybacks and debt reduction. Benchmark sees potential upside to $170 for the stock.

In other recent news, XPO Inc. reported its second-quarter 2025 earnings, surpassing analysts’ expectations. The company achieved an earnings per share (EPS) of $1.05, exceeding the projected $1.00. Additionally, XPO’s revenue outperformed forecasts, reaching $2.08 billion compared to the anticipated $2.05 billion. These results highlight a positive earnings surprise for the company. Despite the favorable financial performance, the stock experienced a notable decline in pre-market trading. Analysts had predicted a different outcome, which reflects in the stock’s movement. The company’s financial achievements are noteworthy, as they provide insights into its current operational efficiency. These recent developments offer valuable information for investors tracking XPO Inc.’s performance.

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