On Thursday, Susquehanna made an adjustment to the stock price target of RXO, Inc. (NYSE: RXO), increasing it to $20.00 from the previous $14.00, while keeping a Negative rating on the stock. This change comes after a detailed analysis of the company's recent acquisition of Coyote, which is predicted to add significant value to RXO.
The analyst from Susquehanna believes that the integration of Coyote into RXO's business model is a positive move that will benefit the company in the short term and aligns well with RXO's long-term strategic goals. Notably, the involvement of Troy Cooper, a former XPO President who has joined the RXO board, is seen as a favorable development for the company's leadership.
Despite the raised price target and the acknowledged strategic benefits of the Coyote deal, Susquehanna's stance on RXO remains Negative. The firm's assessment is that RXO's shares are still priced high when compared to other truck brokerage businesses that have similar market exposures. The comparison points to these companies having higher returns on capital, lower financial leverage, and less risk associated with integrating new operations.
Susquehanna's analysis suggests that while RXO's corporate strategy does not raise concerns, and the Coyote transaction is expected to be beneficial, the current valuation of RXO's shares does not offer an attractive investment proposition. The firm advises caution based on the relative expense of RXO's shares in comparison to its peers in the industry.
In other recent news, RXO, Inc. reported robust second-quarter earnings, with adjusted EBITDA reaching $28 million and a 4% increase in brokerage volume. The company also secured $550 million for the acquisition of Coyote Logistics, a UPS subsidiary, through private financing with MFN Partners, LP and accounts managed by Orbis Investments. Analyst firm TD Cowen maintained its Hold rating on RXO but raised the price target to $28, reflecting the company's recent performance and near-term expectations.
Moreover, RXO has amended its credit facilities, introducing a new $200 million delayed draw term loan facility and extending a $600 million revolving credit facility. This strategic financial restructuring is expected to provide RXO with the necessary liquidity to pursue the Coyote Acquisition.
These are among the recent developments for RXO, as the company continues to navigate the market, capturing growth opportunities while managing challenges. The company anticipates both sequential and year-over-year adjusted EBITDA growth in the upcoming third quarter. However, pressures on brokerage gross margins are expected to persist into the third quarter due to increasing bid rates.
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