XPO's (XPO) operations are improving, but valuation is stretched and upside appears limited given competitive and earnings pressures, Morgan Stanley said in a note Thursday.

The company's Q4 results beat expectations, though part of the upside came from a $13 million real estate gain. Excluding this gain, earnings before interest and taxes were modestly ahead of estimates. Less-than-truckload earnings were broadly in line with expectations, the firm said.

The brokerage added that despite operational progress, valuation remains a concern. Over the past year, consensus earnings estimates have declined sharply, yet the stock has risen about 42%.

At current levels, the shares imply roughly $10 in earnings at a high-end valuation multiple, well above current consensus forecasts. The stock is trading at around 40 times estimated full-year 2027 earnings, which appears difficult to justify, Morgan Stanley said.

"We remain cautious on elevated less-than-truckload expectations given excess industry capacity and rising competition from private carriers, new entrants, brokers, and truckload carriers," it added.

The firm said it is raising earnings per share estimates for 2026, 2027, and 2028 to $4.29, $5.27, and $6.28 from $4.10, $5.02, and $6.05, compared with current consensus estimates of $4.27, $5.47, and $6.90, respectively.

Morgan Stanley lifted its price target on XPO to $95 from $90 and kept its underweight rating.

Price: 195.87, Change: +10.34, Percent Change: +5.57