What Happened?

Shares of freight Delivery Company RXO (NYSE: RXO) jumped 6.2% in the morning session after Morgan Stanley upgraded the stock's rating from Equal-Weight to Overweight and set a new price target of $19.00. The upgrade from analyst Ravi Shanker provided a positive signal for investors. This action followed a notable insider purchase just a few days prior, where director Thomas A. Szlosek acquired over 20,000 shares for a total of approximately $251,209. Such a purchase often indicates strong confidence from company leadership. The positive sentiment from the upgrade and insider activity seemed to overshadow the company's recent third-quarter results, in which its earnings before certain costs were below expectations.

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What Is The Market Telling Us

RXO’s shares are extremely volatile and have had 34 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 2 days ago when the stock dropped 6.2% on the news that 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.

RXO is down 44.7% since the beginning of the year, and at $13.10 per share, it is trading 57.6% 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 $623.81.

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