Citi Upgrades Trucking Stocks, Citing Attractive Valuations Post Sell-Off

Citi has grown more optimistic on trucking and logistics stocks, upgrading Old Dominion Freight Line and C.H. Robinson to Buy in a Tuesday note after the shares pulled back from their summer peaks.

The bank had cut both to lower ratings in June due to concerns about lofty valuations, but now notes that sentiment has cooled, with shares sliding over 25% from their highs.

Citi sees this as a chance to pick up quality names at more attractive valuations, as they now trade closer to long-term historical norms.

According to Citi, both are leaders in their respective segments and have solid execution histories, reducing the likelihood of strategic errors.

While macro weakness remains a worry, analysts highlighted the companies' defensive qualities, notably robust balance sheets, along with possible earnings gains driven by tightening truckload capacity and a turning freight cycle.

Citi attributes C.H. Robinson's decline primarily to worries about broker liability after adverse court decisions, especially the Lipe case in Texas.

Citi called these concerns valid and likely to raise insurance expenses, but expects penalties to lessen over time. The firm initiated a 90-day positive catalyst watch on the shares, predicting the ultimate Lipe ruling may be more lenient than the original jury decision.

Additionally, Citi pointed to firm pricing in interim reports from LTL carriers, increasing the chances Old Dominion beats third-quarter earnings expectations.

Due to macroeconomic concerns, Citi cut its price targets modestly to $223 from $231 for Old Dominion and to $185 from $196 for C.H. Robinson.