What Happened?
Shares of freight Delivery Company RXO (NYSE: RXO) fell 6.2% in the afternoon session after the stock's negative momentum continued as the company's third-quarter results showed weaker-than-expected profitability and a significant squeeze on its margins. While RXO met revenue expectations with a 36.6% year-over-year increase to $1.42 billion, its non-GAAP profit of $0.01 per share fell short of analysts' consensus estimates. The company attributed the underperformance to a sudden tightening of trucking capacity caused by new regulatory enforcement, which resulted in higher transportation costs that outpaced RXO's sale rates. Adding to the pressure, the company also experienced a weakening of demand as the quarter progressed. Management noted that both of these negative dynamics continued into the fourth quarter. Following the report, a UBS analyst maintained a Neutral rating on the shares but lowered the price target to $15.00 from $17.00.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy RXO? Access our full analysis report here.
What Is The Market Telling Us
RXO’s shares are extremely volatile and have had 33 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 21 days ago when the stock gained 4.8% on the news that positive news on corporate earnings, easing political and trade tensions, and optimism about future interest rate cuts all converged to lift investor sentiment.
The overall market, including the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite, climbed significantly. A major catalyst was Apple shares rising 4% after a firm upgraded its rating, citing improving iPhone demand and predicting a long growth cycle. More broadly, the third-quarter earnings season got off to a strong start, with 76% of the 58 S&P 500 companies beating expectations, lifting the market's mood. Additionally, there were hope for an end to the ongoing U.S. government shutdown, which is seen as good for the economy. Investors also moved past recent fears over credit risks that had caused a sell-off the previous week, with shares of regional banks rebounding. Finally, signs that trade tensions with China were de-escalating, including expectations that new tariffs might be avoided, added to the overall positive momentum, leading traders to focus on more favorable factors like earnings and potential Federal Reserve rate cuts.
RXO is down 51% since the beginning of the year, and at $11.61 per share, it is trading 62.4% below its 52-week high of $30.88 from November 2024. Investors who bought $1,000 worth of RXO’s shares at the IPO in October 2022 would now be looking at an investment worth $552.79.
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