Since the beginning of this year, the software sector has remained sluggish, and tech stock investors have suffered significant losses. However, in other fields, surprisingly strong market winners have emerged—XPO, a leading less-than-truckload (LTL) company in North America and Europe, is one of them. So far, XPO’s stock price has accumulated a gain of 39%, with the majority of the increase concentrated this week. This rally is primarily driven by the robust manufacturing report released by the Institute for Supply Management (ISM) and optimistic outlook for 2026 expressed by industry leader Old Dominion Freight Lines.
On Thursday, XPO further supported the stock price increase with strong fourth-quarter results. Although daily freight volume declined by 4.5% due to continued weakness in the industrial sector, the company’s quarterly revenue grew by 5% to $2.01 billion, surpassing market expectations of $1.95 billion, as yield (i.e., pricing) increased by 5.2%.
The company achieved its best performance to date in key service metrics, such as cargo damage rate and on-time delivery rate, which enabled it to raise pricing. At the same time, XPO significantly reduced outsourced long-haul transportation mileage, and a series of measures collectively contributed to margin improvement. In its main market, North America, the adjusted operating ratio improved by 180 basis points to 84.4%, equivalent to an operating margin of 15.6%.
Excluding gains from real estate sales, earnings per share increased from $0.68 to $0.80, higher than the market consensus of $0.76. Following a surge earlier in the week, XPO’s stock price rose another 4% in Thursday afternoon trading.
The direct catalyst driving XPO’s stock price surge earlier this week was the ISM report, which showed that U.S. manufacturing activity ended more than two years of contraction since January, with the reading reaching 52.6. This data is significant for XPO, as approximately two-thirds of its freight transportation involves industrial products. Despite the recent decline in freight volume, the company has maintained solid performance, and manufacturing expansion is expected to bring volume growth, significantly boosting XPO’s revenue and profits.
The company may already be seeing signs of improving demand: even with an estimated negative impact of approximately 3 percentage points due to winter storms in the eastern region, freight volume remained stable in January. Faghri noted that if the economy recovers, the company is ready to accelerate growth—XPO has made significant investments in recent years, adding 25 service centers, 19,000 trailers, and 6,000 tractors since 2022.
Based on key valuation metrics, XPO’s stock currently trades at a price-to-earnings ratio of around 50, which may seem expensive, suggesting that some recovery expectations are already priced in. However, the company expects free cash flow to improve as the early investment cycle ends, even without macroeconomic support. Faghri stated that this would provide the company with more cash to return to shareholders.
In addition to local services and small-to-medium-sized business operations, XPO is also expanding into new high-end services such as grocery consolidation. Overall, in a challenging market environment, XPO has demonstrated excellent execution through operational improvements and margin expansion. If manufacturing recovers as expected, its stock price may have even greater upside potential.
