This Stock Is Already Up 40% This Year, And an Emerging Tailwind Could Push It Even Higher

Core Viewpoint - XPO is experiencing significant growth, with a 39% increase in stock price year-to-date, driven by strong manufacturing reports and positive industry sentiment [2][7]. Financial Performance - XPO reported a 5% increase in revenue to $2.01 billion, surpassing estimates of $1.95 billion, supported by a 5.2% rise in yield despite a 4.5% decline in tonnage per day [3]. - Adjusted earnings per share rose from $0.68 to $0.80, exceeding the consensus estimate of $0.76 [5]. Operational Metrics - The company achieved its best results in key service metrics, including damage ratio and on-time delivery rate, which allowed for price increases [4]. - The adjusted operating ratio in North America improved by 180 basis points to 84.4%, reflecting an operating margin of 15.6% [4]. Market Dynamics - XPO's business is closely linked to manufacturing activity, with approximately two-thirds of shipments related to industrial goods [8]. - The company estimates that volumes are currently down 15%-17% from healthy industrial levels, indicating potential for significant growth if demand normalizes [9]. Future Outlook - There are signs of demand improvement, with volume remaining flat in January despite adverse weather conditions [10]. - XPO has invested heavily in infrastructure, adding 25 service centers, 19,000 trailers, and 6,000 tractors since 2022, positioning the company for future growth [10]. - The company anticipates improved free cash flow as it moves past an earlier investment cycle, allowing for increased shareholder returns [12]. Valuation Considerations - XPO's stock is currently trading at a high price-to-earnings ratio of around 50, suggesting that some recovery expectations are already reflected in the stock price [11].