On Monday (NASDAQ:MNDY), Stifel revised its price target for RXO, Inc. (NYSE: RXO), reducing it to $26.00 from the previous $28.00 but chose to maintain a Hold rating on the stock.
The adjustment follows RXO's third-quarter financial performance, where the company reported an adjusted EBITDA of $33 million. This figure not only falls at the higher end of the company's guidance range of $28 to $34 million but also surpasses the $31 million consensus and slightly exceeds Stifel's own estimate of $32.3 million. The adjusted earnings per share (EPS) met expectations.
The analyst from Stifel acknowledged several positive developments for RXO, including the ahead-of-schedule integration of Coyote and an upward revision of total cost synergy estimates from $25 million to $40 million. Additionally, due to the financing arrangement, the company's leverage decreased by 40%. These factors contribute to a more favorable view of the company's operational progress.
Despite these positives, the analyst expressed concerns regarding the potential impact of business being pulled forward, which may have artificially enhanced the third-quarter operating results. This could potentially be a negative factor for the fourth quarter of 2024.
Management's guidance for the fourth quarter, which anticipates $40 to $45 million, includes a low-double-digit-million amount in synergy capture. However, this suggests a year-over-year decline in Coyote's EBITDA and core RXO earnings, with Coyote's earnings falling short of initial expectations.
The complexity of the integration process was also highlighted as a potential challenge. The analyst indicated that the current valuation of RXO might already reflect the opportunities presented by the integration, leading to the decision to maintain the Hold rating on the stock.
The report suggests that while RXO has made some progress, there are still factors that investors should consider before making investment decisions.
In other recent news, RXO reported its Q3 results for 2024, highlighting a successful integration of Coyote Logistics and an upward revision of anticipated cost synergies from $25 million to $40 million. The company's Q3 revenue stood at $1.04 billion, with an adjusted EBITDA of $33 million. Despite a 5% year-over-year decline in brokerage volume, RXO saw an 11% growth in Last Mile stops.
The company's leverage significantly decreased following the Coyote acquisition, ending the quarter with a cash balance of $55 million.
RXO also provided its outlook for the future, projecting Q4 adjusted EBITDA to be between $40 million and $45 million, with capital expenditures forecasted at $16 million to $18 million. Despite anticipating a muted holiday season and soft market conditions, the company remains optimistic about future cash flow generation from the combined operations.
However, RXO also expressed concern over the weakness in the automotive sector impacting Managed Transportation and a potential decline in adjusted EBITDA moving into Q1. These recent developments reflect RXO's strategic focus on long-term growth and customer relationships amidst challenging market conditions.
InvestingPro Insights
Recent data from InvestingPro provides additional context to RXO's financial situation and market performance. Despite Stifel's price target reduction, RXO has shown a strong market performance with a 65.22% price total return over the past year. This aligns with an InvestingPro Tip highlighting RXO's "high return over the last year."
The company's market capitalization stands at $4.79 billion, with a revenue of $3.86 billion for the last twelve months as of Q3 2024. However, RXO's profitability remains a concern, as indicated by its negative P/E ratio of -108.12 and an InvestingPro Tip noting that the company is "not profitable over the last twelve months." This observation supports Stifel's cautious stance.
On a positive note, another InvestingPro Tip suggests that "net income is expected to grow this year," which could potentially improve RXO's financial position. Additionally, the company "operates with a moderate level of debt," which may provide some financial flexibility as it navigates the integration challenges mentioned in the Stifel report.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for RXO, providing a deeper understanding of the company's financial health and market position.
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