On Monday, Goldman Sachs (NYSE:GS) resumed coverage on RXO, Inc. (NYSE: RXO) stock, assigning a Neutral rating to the stock alongside a price target of $29.00. This follows the company's recent acquisition of Coyote, which was finalized for $1.025 billion on September 16, 2024.
The analyst at Goldman Sachs noted that while the acquisition positions RXO as the third-largest freight brokerage firm, trailing only CHRW and Total (EPA:TTEF) Quality Logistics according to Transport Topics 2024 rankings in cooperation with Armstrong & Associates, there are reasons for a conservative outlook.
The firm's tempered enthusiasm is due to the stock's valuation and its year-to-date performance, which has already seen an approximate 20% increase. In comparison, the transportation group's average stock price performance has risen about 10% despite a recent rally.
RXO's share price is currently trading at multiples of 22 times and 15.0 times enterprise value to EBITDA on Goldman Sachs' 2025 and 2026 estimates, respectively. The analyst's commentary highlights the potential for RXO's upward growth trajectory after its purchase of Coyote, which has transformed the company into a significant player in the logistics industry.
The acquisition of Coyote by RXO is a strategic move that has reshaped the competitive landscape of the freight brokerage sector. With this deal, RXO has significantly expanded its market presence and capabilities.
Goldman Sachs' reinitiation of coverage on RXO with a Neutral rating and a $29 price target reflects a balanced view of the company's prospects, acknowledging both the strengths brought about by the Coyote acquisition and the current market valuation considerations.
In other recent news, RXO Inc. reported strong third-quarter results, with a revenue of $1.04 billion and an adjusted EBITDA of $33 million, surpassing Stifel's estimate of $32.3 million.
The company also highlighted a successful integration of Coyote Logistics and revised the anticipated cost synergies upward from $25 million to $40 million. Despite a 5% year-over-year decline in brokerage volume, RXO saw an 11% growth in Last Mile stops.
Following these results, Citi downgraded RXO's stock from a "Buy" to a "Neutral" stance, setting a new price target of $33.00. The firm plans to closely monitor RXO's performance, particularly the progress in realizing synergies from the acquisition and generating sustained levels of free cash flow.
Stifel also revised its price target for RXO, reducing it to $26 from the previous $28, while maintaining a Hold rating. The firm acknowledged positive developments, including the ahead-of-schedule integration of Coyote and a decrease in the company's leverage by 40%.
However, concerns were raised about the potential impact of business being pulled forward, which may have affected the third-quarter operating results.
Looking forward, RXO anticipates a Q4 adjusted EBITDA to be between $40 million and $45 million. The company continues to focus on long-term growth and customer relationships amidst challenging market conditions. These are the recent developments that investors should consider.
InvestingPro Insights
To complement the analysis provided by Goldman Sachs, recent data from InvestingPro offers additional context on RXO's financial position and market performance. The company's market capitalization stands at $4.38 billion, reflecting its enhanced scale following the Coyote acquisition. Despite the strategic move, RXO faces some financial challenges, as evidenced by its negative P/E ratio of -98.91 over the last twelve months as of Q3 2024, indicating current unprofitability.
However, aligning with Goldman Sachs' forward-looking perspective, InvestingPro Tips suggest that net income is expected to grow this year, and analysts predict the company will return to profitability. This outlook supports the potential for RXO's valuation to improve as synergies from the Coyote acquisition materialize.
The company's revenue for the last twelve months as of Q3 2024 was $3.86 billion, with a gross profit margin of 18.18%. While these figures provide a baseline, investors should note that they do not yet fully reflect the impact of the Coyote acquisition, which could significantly alter RXO's financial profile in upcoming quarters.
InvestingPro Tips also highlight that RXO operates with a moderate level of debt, which could be advantageous as the company integrates Coyote and seeks to leverage its new market position. Additionally, the stock has seen a large price uptick over the last six months, corroborating Goldman Sachs' observation of its strong year-to-date performance.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide deeper insights into RXO's investment potential.
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