Benchmark holds stock target on XPO despite tonnage dip

On Thursday, Benchmark reiterated its Buy rating on XPO Logistics , Inc. (NYSE:XPO) shares with a steady price target of $140.00, despite observing a decline in the company's third-quarter-to-date (QTD) less-than-truckload (LTL) operating data. According to Benchmark, XPO's QTD tonnage per day growth fell by 2.7%, not meeting the analyst's expectation of a 0.9% decrease for the third quarter.

The soft tonnage for August was attributed to a sluggish industrial economy, a sector where XPO has significant exposure. Moreover, the company's selective approach to freight acceptance was noted as a contributing factor. Despite this, Benchmark anticipates that XPO's revenue per hundredweight (rev/cwt) excluding fuel is likely to align with their projected 6% year-over-year increase, albeit representing a slowdown from the 8.9% growth seen in the second quarter due to more challenging comparisons.

XPO's strategy of focusing on margin accretive volume leads the company to expect a sequential deterioration of 100-150 basis points (bps) in its operating ratio (OR) for LTL. However, this is viewed as a better performance than typical seasonality excluding outlier quarters. The company is also on track to achieve an OR improvement of 150-250 bps for the entire year.

As a result of the lower tonnage figures, Benchmark has adjusted its fiscal year (FY) 2024 and FY 2025 estimates for XPO. Nevertheless, the firm remains positive on the stock, citing higher pricing and continued OR improvement as key factors that will drive XPO's long-term earnings growth, underpinning the maintained $140 price target.

In other recent news, XPO Logistics has been subject to several analyst adjustments. TD Cowen revised its price target for the company from $143 to $142, while maintaining a Buy rating. This decision was influenced by the company's quarter-to-date trends, specifically the 4.6% decrease in August's tonnage per day. Despite this, TD Cowen remains confident in XPO's ability to manage yields and costs effectively, maintaining yield and margin estimates.

Simultaneously, BMO Capital held its Outperform rating and $145.00 stock price target for XPO Logistics, in the wake of rumors that the company may be attempting to divest its European transportation segment. BMO Capital believes a successful sale could lead to a mid-to-high single-digit percentage increase in earnings per share for XPO.

Stifel has also adjusted its price target for XPO, raising it from $120.00 to $125.00, while maintaining a Buy rating on the stock. This decision came in light of XPO's strong second-quarter performance, which surpassed market expectations.

The company reported an adjusted EBITDA of $343 million and adjusted earnings per share of $1.12. The North American Less-Than-Truckload (NA LTL) segment significantly contributed to these figures, experiencing considerable share gains and top-line growth. The company concluded the quarter with $250 million in cash and $836 million in liquidity. These are all recent developments that investors should consider.

InvestingPro Insights

In light of Benchmark's continued support for XPO Logistics, Inc. (NYSE:XPO), it's beneficial to consider additional insights that InvestingPro offers. According to InvestingPro, XPO's net income is expected to grow this year, which aligns with Benchmark's positive long-term earnings growth outlook for the company. Furthermore, XPO is trading at a low P/E ratio relative to near-term earnings growth, suggesting potential value for investors considering the stock's future earnings potential.

From a data perspective, XPO Logistics boasts a market capitalization of $12.98 billion and a Price/Earnings (P/E) ratio of 36.54, which adjusts to 31.08 when considering the last twelve months as of Q2 2024. Additionally, the company has experienced a revenue growth of 5.47% over the same period, indicating a solid financial performance. Despite not paying dividends, XPO has delivered a high return over the last year, with a 61.37% one-year price total return, showcasing its strong market performance.

For investors seeking more comprehensive analysis, InvestingPro offers additional tips on XPO Logistics, available at InvestingPro's dedicated XPO page. With these insights, individuals can make more informed decisions, backed by real-time data and expert analysis.

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