Trucking stocks trade in red; Morgan Stanley revisits LTL sector

Trucks driving through a countryside landscape at sunset

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Trucking stocks were trading in red on Wednesday, with the S&P 500 Trucking Index (SP500-20304020) down ~11% and the Nasdaq Combined Transportation Index (TRAN) down over 5%.

According to a Bloomberg report, trucking and logistics stocks fell amid weak outlook from retailers, including Target (TGT), which saw higher fuel and freight costs in Q1.

Meanwhile, Morgan Stanley lowered price targets on LTL stocks, taking into account Q1 earnings. But it remains fairly bullish on the sector. "Despite Q1 being seasonally weaker, LTLs posted a string of beats across the board," analyst Ravi Shanker wrote in a note to clients.

He said management of LTL firms seem confident of maintaining pricing through downturn. While outlook is optimistic, these stocks mostly declined since the year started.

"Bulls see the sell-off as a good opportunity to revisit LTL names, while bears still see plenty of room for the stocks to mean-revert to pre-pandemic levels," Shanker added.

Saia (SAIA) stock dropped to its lowest in over 29 months on Wednesday. Morgan Stanley cut SAIA's PT to $190 from $204, implying potential downside of 8.4%, but reaffirmed its Underweight rating as "expectations seem to be the most elevated and valuation is not cheap enough".

Old Dominion Freight Line (ODFL) stock hit its lowest in over 13 months. Morgan Stanley cut ODFL's PT to $310 from $337, implying potential upside of 14%, and maintained its Equal-weight rating as it believes risk-reward seems balanced.

XPO Logistics (XPO) stock fell to a near 20-month low. Morgan Stanley cut XPO's PT to $75 from $80, implying potential upside of ~41%, maintaining its Equal-weight rating as more evidence is needed of normalized earnings.

ArcBest (ARCB) stock fell to a month low. Morgan Stanley cut ARCB's PT to $140 from $145, implying potential upside of ~80% to its last close. But it maintained its Overweight rating as ARCB is trading at a discount to peers.

TFI International (TFII) stock fell as much as 6.4%. Morgan Stanley cut TFII's PT to $128 from $135, implying potential upside of 51.7%. It reiterated its Overweight rating as TFII is "adept at capitalizing on cyclical tailwinds and has idiosyncratic opportunities to buoy earnings".

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