XPO Logistics valuation compelling but macro headwinds dampen growth

By Sam Boughedda

XPO Logistics (NYSE:) was reinstated with a Neutral rating and a $42 per share price target at Citi on Wednesday.

Analysts told investors in a note that while the company’s valuation “remains compelling,” they believe macro headwinds will “likely dampen tonnage growth,” even with easier comps than peers.

“Looking into 2023, we think freight weakness in 1Q could drive earnings misses broadly across our TL and LTL coverage, and we’d prefer to remain cautious ahead of that time frame. Following the spin of RXO, standalone XPO becomes somewhat of a ‘show me’ story in the LTL sector,” wrote the analysts.

XPO Logistics shares are up around 1.86% at $38.37 per share so far on Wednesday, heading into the close. Although the stock has rallied around 28% in the last month, it is still down approximately 17% in 2022.

“We are updating our 4Q and 2023 EPS estimates to $0.85 and $3.15, respectively. Our adjustments reflect the stand alone XPO and account for roughly flat tonnage growth in 4Q and modestly negative growth for 2023. On the yield side, we believe LSD growth in 4Q is achievable. We expect ~60 bps of OR improvement for 2022, which is within the company’s guided range,” added the analysts.

“Given its position as a lower margin player compared to peers, it is likely that more evidence will be required to prove that XPO can bridge the margin gap before the company can narrow the multiple spread vs. higher margin peers.”