Citi Upgrades Old Dominion, C.H. Robinson to Buy on Valuation Pullback

Citi has adopted a more bullish stance on the trucking and logistics sector, upgrading both Old Dominion Freight Line (ODFL) and C.H. Robinson (CHRW) to Buy from Neutral. The bank's analysts said in a note Tuesday that a recent sell-off presents investors with an "opportunity to buy quality at a reasonable price."

A More Attractive Entry Point

The upgrades mark a reversal from June, when Citi had downgraded the two companies on concerns over stretched valuations. Since then, both stocks have fallen more than 25% from their summer peaks, bringing their valuations closer to historical averages, the note explained.

Despite an expected macro slowdown, Citi highlighted the defensive characteristics of both companies. The analysts pointed to their strong balance sheets and leadership positions in their respective sub-sectors, which they believe limit the risk of strategic missteps.

Company-Specific Catalysts

For C.H. Robinson, Citi noted that the stock's decline was largely driven by investor concerns over broker liability following unfavorable legal rulings. While the bank views these concerns as legitimate and likely to increase insurance costs, it believes the market reaction has been excessive. Consequently, Citi has opened a 90-day positive catalyst watch on the stock, anticipating a potentially less severe final verdict in a key case.

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For Old Dominion, the analysts observed resilient pricing in mid-quarter updates from less-than-truckload (LTL) carriers. This trend raises the possibility that the company could report a third-quarter earnings beat. Citi also sees potential earnings upside for the sector from tightening truckload capacity and a freight cycle inflection.

Revised Price Targets

While upgrading the stocks, Citi slightly trimmed its price targets, citing macro risks. The firm's new price targets are:

• Old Dominion Freight Line (ODFL): Lowered to $223 from $231.
• C.H. Robinson (CHRW): Lowered to $185 from $196.