On Tuesday, Stifel maintained a Hold rating on RXO, Inc. (NYSE: RXO) and increased the stock price target to $26.00 from the previous $19.00. This revision follows RXO's agreement to acquire the Coyote Logistics Unit from UPS for approximately $1 billion. The transaction, announced on Sunday, is expected to be immediately accretive to RXO's adjusted diluted earnings per share (EPS) and adjusted free cash flow.
According to Stifel, the acquisition will significantly enhance RXO's scale within the logistics industry. Although the combined operations of RXO and Coyote Logistics will likely not surpass the second-largest total quality logistics (TQL) player, it will solidify RXO's position as the third-largest entity and more than double its existing brokerage gross revenue.
Stifel pointed out several considerations regarding the deal. Firstly, the acquisition is anticipated to be leverage-neutral, reliant on the realization of synergies to maintain RXO's highly-leveraged balance sheet.
Secondly, there is limited visibility into Coyote's business and the quality of its revenue book. Lastly, while the deal represents growth, it does not align with the organic growth opportunities that RXO's management has targeted for the midterm.
Despite these concerns, Stifel views the acquisition as a net positive for RXO. The deal is seen as a strategic move to promote growth in a challenging market, yet the firm advises caution, suggesting that the risk/reward balance still warrants a Hold rating on the stock.
In other recent news, RXO, Inc. has been the subject of several analyst reports. Jefferies raised its price target for RXO to $30 and reiterated its Buy rating, citing the company's recent acquisition as a key factor. The deal is expected to significantly improve RXO's scale within the brokerage sector and have a substantial positive impact on its earnings per share and free cash flow.
UBS, on the other hand, maintained its Neutral rating on RXO with a price target of $22. The firm's analysis indicates that RXO's financial outlook for the second quarter aligns with previous expectations, anticipating an increase in adjusted EBITDA. RXO's management has projected a rise in adjusted EBITDA, supported by a stable brokerage market and a $35 million cost reduction program.
In RXO's latest earnings call, the company reported steady growth amid a soft freight market. RXO's adjusted EBITDA remained within the previously forecasted range in the first quarter of 2024, with an 11% increase in total volume in the brokerage business. RXO's revenue for the quarter was $913 million, a decrease from $1 billion in the same quarter of the previous year.
Still, the firm generated $1 million in adjusted free cash flow, surpassing expectations. RXO ended the quarter with a robust balance sheet, including $7 million in cash and over $600 million of committed liquidity.
RXO anticipates a positive seasonal increase in full truckload volume in the next quarter and plans to reduce annualized operating expenses by at least $35 million in 2024. These are the recent developments in RXO, Inc.
InvestingPro Insights
Following Stifel's updated stance on RXO, Inc. (NYSE: RXO), InvestingPro data shows that the company has a market capitalization of approximately $2.92 billion. Despite a challenging revenue growth scenario, with a -14.78% decline in the last twelve months as of Q1 2024, RXO has experienced significant price returns of 23.88% over the last week and 22.23% over the past month. This suggests a positive market reaction to recent developments, including the acquisition of Coyote Logistics.
InvestingPro Tips highlight that RXO is trading near its 52-week high, at 98.42% of the peak, which aligns with the market's upbeat response to the transaction. Still, it is important to note that the stock's P/E ratio stands at a negative 199.52, reflecting challenges in profitability.
Analysts predict that net income is expected to grow this year, providing a potential turnaround from the lack of profitability over the last twelve months. Moreover, the company does not pay a dividend, which may influence investment decisions for income-focused shareholders.
Investors interested in a deeper analysis can explore more InvestingPro Tips, which offer insights such as the company's moderate level of debt and expectations for profitability. For those considering a subscription, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 11 additional tips available on InvestingPro that could further inform investment decisions regarding RXO.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.