Evaluating RXO's Potential: Analyst Highlights Company's Robust Balance Sheet and FCF Conversion Rate

Susquehanna Financial Group analyst Bascome Majors initiated coverage on RXO Inc RXO at a Neutral rating with a price target of $20.

The analyst applauds RXO's incredible growth during the pandemic freight surge and expects it to perform well in a risk-on truckload backdrop.

Majors is bullish on the company's strong track record of excessive growth in favorable markets, robust balance sheet, and healthy FCF conversion rate, which offers potential for share repurchases. 

The analyst expects RXO management to boost the financials and investor credibility to sail through its first freight recession as a standalone company.

Majors thinks RXO management has set an ambitious five-year target for 2027 but believes if they hit the 2027 EBITDA target of $500 million (vs. Majors' estimate of $170 million for 2023), it will be a home run for its shares. 

The analyst estimates EPS of $0.50 in 2023 and $0.80 in 2024. 

Price Action: RXO shares are trading lower by 1.68% at $21.92 on the last check Friday.