Citi turns more bullish on trucking stocks

Investing.com -- Citi has turned more positive on trucking and logistics stocks, upgrading Old Dominion Freight Line and C.H. Robinson to Buy in a note Tuesday after both fell from their summer highs.

The bank had downgraded the two in June on concerns over stretched valuations, but said sentiment has since moderated, driving the shares down more than 25% from their peaks.

That leaves "an opportunity to buy quality at a reasonable price," Citi wrote, with valuations now closer to historical averages.

Both companies, leaders in their respective sub-sectors, have strong track records that limit the risk of a strategic misstep, Citi said.

While a macro slowdown is expected to remain a concern, the analysts pointed to defensive characteristics, particularly strong balance sheets, and potential earnings upside from tightening truckload capacity and a freight cycle inflection.

According to Citi, C.H. Robinson's sell-off has been driven largely by concerns over broker liability following unfavorable legal rulings, notably the Lipe case in Texas.

"We view these concerns as legitimate and likely to push up insurance costs," Citi wrote, though it expects the severity of penalties to ease over time. The bank opened a 90-day positive catalyst watch on the stock, anticipating that the final Lipe verdict could prove less severe than the initial jury ruling.

Citi also noted resilient pricing in mid-quarter updates from less-than-truckload carriers, raising the prospect of a third-quarter earnings beat at Old Dominion.

Citing macro risk, it trimmed its price targets slightly to $223 from $231 for Old Dominion and to $185 from $196 for C.H. Robinson.

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