Susquehanna downgraded RXO Inc (NYSE:RXO) and CH Robinson Worldwide Inc (NASDAQ:CHRW) to Negative, noting that truck brokers face a difficult cyclical path into 2024, with demand seasonal at best, limited spot volume, contract rates under pressure until the spring bid season, and truckload capacity stubbornly priced with spot rates below operating costs.
RXO was downgraded from Neutral to Negative with a price target of $14.00. Meanwhile, C.H. Robinson was cut from Neutral to Negative with a price target of $77.00 (from $88.00).
As a result, RXO shares fell nearly 4% today, while C.H. Robinson shares closed with more than a 3% loss.
According to Susquehanna, transport sector performance post-earnings has been challenging, with most segments underperforming except LTL.
“We believe investors increasingly believe demand is returning to seasonality but not ramping up more, with shippers' inventory caution suggesting the first half of 2024 is likely to look more like the back half of 2023 than current sell-side consensus implies,” mentioned Susquehanna.
The firm broadly agrees with that sentiment, noting that the truckload brokerage model is particularly susceptible in this context. Factors include limited demand catalysts, strong competition from larger carriers with reduced contractual pricing, and minimal benefit from declining capacity costs as truckload spot rates are already below small carriers' operating costs.
Consequently, the firm cut its H2/23 and 2024 brokerage forecasts, with the most significant impact anticipated for contractually levered C.H. Robinson and RXO, where an extended truckload spot-vs.-contract squeeze is most challenging.