On Thursday, UBS reaffirmed its Neutral rating on RXO, Inc. (NYSE: RXO) with a maintained price target of $22.00. The brokerage firm's assessment followed a series of meetings with RXO management and a tour of their brokerage operations earlier this week. UBS's analysis indicates that the company's financial outlook for the second quarter aligns with previous expectations set by RXO, anticipating an increase in adjusted EBITDA.
RXO's management has projected a rise in adjusted EBITDA from $15 million in the first quarter to a range of $24 million to $30 million in the second quarter. This growth is expected to be supported by a stable brokerage market, which contrasts with the pressures observed in January, and seasonal improvements in the last mile segment. Additionally, RXO's operating costs are likely to be mitigated by a $35 million cost reduction program that the company has implemented for the full year.
The analyst noted that the current market conditions are unfolding as RXO had anticipated for the second quarter. The firm's positive outlook is partly based on the expected benefits from the stabilization in the brokerage market compared to the first quarter, coupled with seasonal enhancements in their last mile operations.
UBS's commentary underscores RXO's strategic measures to improve its financial performance. The cost reduction program, in particular, is highlighted as a significant factor in supporting the company's operating costs and contributing to the expected growth in adjusted EBITDA.
In summary, UBS's stance on RXO remains unchanged following the firm's in-depth review of RXO's operations and financial strategies. The Neutral rating and $22.00 price target reflect the firm's evaluation of RXO's market position and anticipated performance in the upcoming quarter.
In other recent news, RXO reported a steady growth despite a soft freight market. The company's adjusted EBITDA remained within the previously forecasted range in the first quarter of 2024, with an 11% increase in total volume in the brokerage business. RXO's revenue for the quarter was $913 million, a decrease from $1 billion in the same quarter of the previous year. However, the firm generated $1 million in adjusted free cash flow, surpassing expectations.
RXO ended the quarter with a robust balance sheet, including $7 million in cash and over $600 million of committed liquidity. Looking forward, RXO anticipates a positive seasonal increase in full truckload volume in the next quarter and expects to grow consolidated brokerage volumes year-over-year with a steady gross margin. The company also plans to reduce annualized operating expenses by at least $35 million in 2024.
InvestingPro Insights
UBS's neutral stance on RXO, Inc. (NYSE: RXO) is supported by a mix of optimism and caution reflected in the company's recent financial metrics and analyst expectations. According to InvestingPro data, RXO's market cap stands at $2.36 billion, with a high Price / Book multiple of 4.05 as of the last twelve months leading up to Q1 2024. Despite a revenue decline of 14.78% during the same period, analysts are forecasting an uptick in net income, indicating potential for profitability this year.
InvestingPro Tips suggest that RXO is operating with a moderate level of debt and does not pay dividends, which could be appealing to growth-focused investors. Furthermore, with the company not being profitable over the last twelve months and trading at high valuation multiples, investors are keenly anticipating the next earnings date on July 31, 2024, to gauge the company's progress towards profitability.
For those looking to delve deeper into RXO's financial outlook, InvestingPro provides additional tips, including the prediction that the company will be profitable this year. To access these insights and more, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 6 additional tips available on InvestingPro that could further inform investment decisions regarding RXO.
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