Citi Research Upgrades XPO to Buy on Trucking Valuation Reset

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Summary · why it matters

Citi Research analyst Ariel Rosa upgraded XPO to Buy from Neutral, citing a buying opportunity in trucking stocks after a recent decline across the transport sector. Rosa attributed the opportunity to a "valuation reset" across the segment following J.B. Hunt Transport's profit warning last month, which he called a "healthy correction" even as macro risks including high fuel prices and rising interest rates keep investors cautious. He assigned a "Top Pick" designation to C.H. Robinson Worldwide, Saia, TFI International, GXO Logistics and newly Buy-rated XPO, as well as United Parcel Service and FedEx. For XPO's third-quarter results, due before the open on October 29, Rosa expects tonnage to rise by a mid-single-digit percentage and a higher fuel surcharge to support EBIT, with roughly half of the quarter's yield gain coming from core pricing and the other half from mix as XPO advances its local, premium and grocer initiatives. He sees XPO doubling free cash flow this year to approximately $800M and reaching $1B by 2027, leading to increased share buybacks; the company is expected to report an adjusted profit of $1.57 per share on $2.37B in revenue.

Impact on assets 8

Industrials± Mixed
XPO Logistics Inc
XPO
▲ PositiveCapitalrelevance

Citi upgraded XPO to Buy from Neutral on a trucking valuation reset, expecting Q3 tonnage growth, EBIT support, doubling FCF to ~$800M and more buybacks.

FedEx Corporation
FDX
▲ PositiveCapitalrelevance

FedEx was named among Citi's Top Pick transport stocks in the upgrade note.

GXO Logistics Inc
GXO
▲ PositiveCapitalrelevance

GXO Logistics was named among Citi's Top Pick transport stocks in the upgrade note.

Saia Inc
SAIA
▲ PositiveCapitalrelevance

Saia was named among Citi's Top Pick transport stocks in the upgrade note.