Mehrotra and Germans, often XPO skeptics, will no longer follow the LTL company

One of Wall Street’s more well-known strained relationships between an analyst and a company is ending.

In an email to customers sent out late Tuesday, Deutsche Bank’s transportation research team, led by Amit Mehrotra, said it would stop reporting on XPO Logistics (NYSE:XPO).

“Due to changes in team priorities, we are discontinuing coverage of XPO Logistics effective immediately,” the email reads. “One should no longer rely on our previous ratings and price targets.”

There was no further explanation. Mehrotra’s team at Deutsche Bank is tracking other pure-play LTL carriers like Old Dominion Freight Lines (NASDAQ: ODFL) and Saia (NASDAQ: SAIA).

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

E-mails to members of the German research team were not answered by the time of publication.

With that, an analyst who has criticized the company’s performance for several years closed the books on its pursuit of XPO, despite his final rating for the company being Hold, a relatively neutral rating.

But this review is fairly new. It’s not that Deutsche Bank’s analysis of the company hasn’t been active, having taken these significant actions less than a month ago.

In its announcement, sent to customers on Oct. 17, Mehrotra said the downgrade from “buy” was due to service issues.

“We believe that the key criteria for long-term success in the LTL business are good service (primarily), detailed understanding of shipment-level costs, and good execution within the confines of a network-centric business model,” said Mehrotra. “Good service is not intangible, but is measured by certain factors, such as [percentage] of the shipments delivered undamaged, [percentage] of the consignments delivered free of defects, [percentage] shipments being picked up as promised and many other measurable factors; and will be achieved through consistent investment in terminals, equipment and manpower, and good execution.”

A trend reversal will take some time, he said.

“Obviously we believe that XPO management is pursuing the right strategies to improve the service,” said Mehrotra. “But as we noted, we believe this is a long-cycle problem that will likely take years (not quarters) to reverse the negative impact of six years of underinvestment.”

The hold rating is notable for being outside of the norm. According to Barchart, 14 analysts have rated XPO as “strong buy,” two as “moderate buy,” and two as “hold,” including Deutsche Bank.

The relationship was so strained that in May, Mehrotra accused XPO management of preventing him from popping a question on the first-quarter earnings call. XPO said it had run out of time to answer all the questions analysts wanted to ask.

Mehrotra has been known for asking XPO management some pointed questions about the company’s earnings calls — and the friction didn’t stop there. A post-earnings call discussion between XPO management, including CEO Brad Jacobs, has reportedly deteriorated into significant animosity, sources say.

A question from Mehrotra to XPO management in Q3 2021 about the analyst call was somewhat typical of the type of request he’s often heard from.

“With the LTL deal, I’m not so focused on where we’ve been,” Mehrotra said, according to a transcript. “I think the results are pretty clear, but I’m really focused on where we’re going. So what I’m trying to understand is the urgency in the organization, the urgency in your mind to get the LTL business back on a better track. And is it fair to say that Q3 results are kind of an inflection point for the company to change course in the LTL business?

Jacobs’ response was that XPO “stumbled into LTL”.

“Regarding your question about urgency, we love to solve problems – that’s how we create alpha,” Jacobs said. “We have a tremendous track record of creating significant shareholder value for our investors over the long term. And of course we will correct this LTL with great urgency and I am confident that we will do so.”

In a report on XPO issued on Sept. 30, as the company embarked on its quest to become an LTL-only carrier following the spin-offs of RXO (NYSE: RXO) and GXO (NYSE: GXO), referenced Deutsche Bank on “XPO’s underperformance versus pure LTL peers,” but also said it’s “a source of opportunity.”

XPO stock is down more than 55% on a head-to-head basis over the past 12 months, but with its spin-offs, it’s a significantly smaller company than it was a year ago. The stock, including forks, is down about 20% over the last 12 months.

XPO earnings per share for the third quarter were $1.13, up from 19 cents a year ago.

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