With incoming president Donald Trump's focus on tariffs as a means of controlling trade, investors might reasonably expect that the cost of importing some international goods could substantially increase after the arrival of the new administration in 2025. One possible outcome of this move might be an increase in domestic production and manufacturing. This is not yet the case—for December 2024, the S&P Global U.S. Manufacturing PMI, a measure of whether the manufacturing industry is growing or contracting, fell to 48.3 from 49.7 the prior month (a level of 50 or higher indicates growth).

Still, investors who are bullish about manufacturing in the United States may be drawn to companies affiliated with this industry. Besides the firms that are responsible for the manufacturing of different products themselves, a key component of the industry is transportation and logistics services. Freight transporters like XPO Inc. (NYSE: XPO) and Old Dominion Freight Line Inc. (NASDAQ: ODFL) provide less-than-truckload (LTL) service domestically and internationally, making them a critical part of the process of connecting manufacturers with end customers. Of these firms, XPO stands out for its strong performance in the last year (shares of XPO are up 57% for the year as of December 20, 2024, while ODFL has declined by more than 9% over the same period).

Revenue Growth, Cost Management, Pricing Potential

XPO's customers include businesses in the industrial, manufacturing, retail, consumer goods, and logistics spaces, among others. These businesses have a range of options to choose from when determining how to transport their products. ClearBridge Investments summed up some of the reasons XPO rises above its competitors in a recent investor letter, saying that the firm's "healthier industry structure and better pricing dynamics" merit consideration separate from rivals like United Parcel Service Inc. (NYSE: UPS).

XPO's third-quarter earnings reflect this dominance. The company reported 3.7% year-over-year improvement in revenue, driven by both North American and European business. XPO's North American LTL operation was a particular standout for adjusted operating income, which climbed by 16.5% year-over-year. This business line achieved an adjusted operating ratio of 84.2%.

The company didn't see just top- and bottom-line growth, though, but also climbing revenue rates per shipment and operating leverage—indicators that XPO is operating efficiently and maximizing its growth potential.

XPO's North American LTL business also boosted its adjusted EBITDA for the third quarter to $284 million from $241 million one year earlier, the result of higher yield exclusive of fuel and reduced purchase transportation costs.

Analyst Favorite

In addition to its strong stock performance throughout much of 2024, XPO has attracted analyst attention as well and has become a favorite. Out of 16 analysts covering the company, 15 have assigned it a Buy rating. In December alone, analysts at Goldman Sachs, Oppenheimer, JPMorgan, and Stephens all either reiterated or increased their price targets for XPO shares. The company's consensus price target is now $147.31—based on share prices as of December 20, the stock would need to increase by almost 7% to match that target.

Notably, the most recent price targets assigned by the four firms above are much higher than the consensus target. Goldman Sachs' analysts expect XPO shares to reach $167, for instance, while Oppenheimer's analysts predict it could go as high as $176.

Uncertainty at the End of the Year?

Right at the end of 2024, XPO shares seem ready to give up some of the gains they've achieved throughout the year—in the five days of trading leading to December 20, the stock has fallen nearly 14%. Much of this is likely due to competitor FedEx Corp.'s (NYSE: FDX) late-December announcement that it would lower its fiscal year guidance amid ongoing challenges for the industrials sector more broadly.

FedEx is also planning to spin off its freight trucking business, a move that could ultimately be a positive for the specialized LTL industry of which XPO is a part, but which will likely cause some volatility for transporters nationwide over the short term. Investors considering an investment in XPO in the new year would be wise to also keep a close watch over the ongoing developments with FedEx, as well as the firm's other competitors in the transportation industry.