On Wednesday, BMO Capital maintained its Outperform rating on shares of XPO Logistics (NYSE: NYSE:XPO) and raised the price target to $162.00 from the previous $140.00. The firm's analyst cited the company's potential to achieve a high-70% operating ratio (OR) by the fiscal year 2028, which could support a share price of approximately $219 if valued at 12.5 times enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA).
The analyst further noted that XPO's valuation might have additional upside potential, referencing the trading multiples of peers SAIA and ODFL, which are currently at 17.7 times and 23 times next twelve months (NTM) EV/EBITDA, respectively. The improvement in free cash flow (FCF) conversion, the potential sale of its European operations, debt reduction, and the possibility of a share buyback program were all factors that could contribute to XPO's higher valuation.
According to the analyst, each turn of EBITDA could add roughly $16 per share to XPO's fiscal 2027 estimates. The decision to increase the one-year price target to $162 reflects raised estimates following XPO's strong performance in the third quarter and the company's effective execution.
XPO Logistics' strategic moves, including the potential sale of its European business and the reduction of its leverage, are expected to enhance the company's financial profile. The analyst's outlook suggests a positive trajectory for XPO's stock price, as reflected in the raised price target.
InvestingPro Insights
To complement BMO Capital's bullish outlook on XPO Logistics, recent data from InvestingPro offers additional perspective on the company's financial health and market performance. XPO's market capitalization stands at $15.77 billion, reflecting its significant presence in the logistics industry. The company's revenue for the last twelve months as of Q2 2024 was $8.017 billion, with a notable revenue growth of 8.45% in the most recent quarter.
InvestingPro Tips highlight that XPO is trading near its 52-week high, with a strong return of 55.2% over the past year. This aligns with the analyst's positive sentiment and raised price target. Additionally, XPO's net income is expected to grow this year, supporting the potential for improved financial performance that BMO Capital anticipates.
It's worth noting that XPO's P/E ratio (adjusted) of 33.52 and Price to Book ratio of 9.34 suggest a premium valuation, which could be justified by the company's growth prospects and potential operational improvements mentioned in the article. For investors seeking more comprehensive analysis, InvestingPro offers 13 additional tips on XPO, providing a deeper dive into the company's financial metrics and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.