Rocky Mountain Trucking LLC

One of the more well-known tense relationships on Wall Street between an analyst and a company is coming to an end.

In an email to clients sent late Tuesday, the transportation research team at Deutsche Bank led by Amit Mehrotra said it was ceasing coverage of XPO Logistics (NYSE: XPO).

“Due to changes in team priorities, we are dropping coverage of XPO Logistics effective immediately,” the email said. “Our previous ratings and price target should no longer be relied upon.” 

There was no further explanation provided. Mehrotra’s team at Deutsche Bank does track other pure-play LTL carriers, such as Old Dominion Freight Lines (NASDAQ: ODFL) and Saia (NASDAQ: SAIA).

In a statement to FreightWaves, an XPO spokesman said: “We wish Mr. Mehrotra the best.”

Emails to members of the Deutsche research team had not been responded to by publication time. 

With that, an analyst who has been critical of the performance of the company for several years closed the books on his tracking of XPO even as its final rating on the company was “hold,” a relatively neutral classification.

But that rating is fairly new. It’s not as if Deutsche Bank’s analysis of the company wasn’t active since it took that significant action less than a month ago.

In its announcement sent to clients Oct. 17, Mehrotra said the downgrade from “buy” was because of service issues. 

“We believe the main criteria for long-term success in the LTL business is good service (first and foremost), detailed understanding of costs at the shipment level and good execution within the confines of a network centric business model,” Mehrotra said. “Good service is not intangible but rather measured by specific factors like [percentage] of shipments delivered with no damages, [percentage] of shipments delivered with no shortages, [percentage] of shipments picked up when promised, and many other measurable factors; and is achieved by consistent investment in terminals, equipment and labor and good execution.”

A turnaround will take some time, he said.

“To be sure, we believe XPO management is pursuing the right strategies to improve service,” Mehrotra said. “But as we’ve noted before, we believe it’s a long-cycle issue likely to take years (not quarters) to reverse the negative impact of six years of underinvestment.”

The hold rating is notable in how out of the norm it is. According to Barchart, 14 analysts have “strong buy” ratings on XPO, two have “moderate buy” and two have hold, with one being Deutsche Bank.

The relationship was strained enough that in May Mehrotra accused XPO management of blocking him from asking a question on the first-quarter earnings call. XPO said it had run out of time to take all the questions that analysts were seeking to ask. 

Mehrotra was known to ask some pointed questions of XPO management on the company’s earnings calls — and the friction did not stop there. One post-earnings-call discussion with XPO management was said by sources to have deteriorated into significant hostility. 

A third-quarter 2021 question from Mehrotra to the XPO management on the analysts’ call was somewhat typical of the type of query that could often be heard from him. 

“On the LTL business, I’m not so focused on where we’ve been,” said Mehrotra, according to a call transcript. “I think the results are pretty clear, but I’m really focused on where we’re going. And so what I’m trying to understand is the level of urgency in the organization, the level of urgency in your mind to get the LTL business back on a better trajectory. And is it fair to say that 3Q results is a bit of a kind of watershed moment for the company to kind of change course on the LTL business?”

Jacobs’ response was that XPO had “stumbled in LTL.”

“With respect to your question about what’s the level of urgency, we love solving problems — that’s how we create alpha,” Jacobs said. “We have a tremendous track record of creating significant shareholder value over the long term for our investors. And we will course correct this LTL with a great level of urgency, and I’m confident we will.”

In a report on XPO issued Sept. 30 as the company was moving toward becoming a pure-play LTL carrier after the RXO (NYSE: RXO) and GXO (NYSE: GXO) spinoffs, Deutsche Bank referred to “XPO’s underperformance to pure play LTL peers” but also said it was “a source of opportunity.”

XPO stock with the spinoffs accounted for is down roughly 20% in the last 12 months. XPO earnings per share in the third quarter came in at $1.13 versus 19 cents a year ago.

More articles by John Kingston

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