Heartland Express' (HTLD) rate increases are gaining traction, though their full benefit will likely be realized in Q3 due to contract repricing cycles, Morgan Stanley said in a note Friday.

Rate increases are now in the mid-single-digit percentages, driven mainly by limited capacity rather than higher demand, with some freight volume shifting back to Heartland from brokers and weaker carriers, the brokerage said.

In its Q1 earnings report, the company showed it is making "tangible" integration progress and keeping costs under control, with operational losses narrowing significantly and business momentum strengthening into March despite challenges due to the weather and fuel prices, according to the note.

The quarter marks a "clear positive inflection point," with a more favorable environment seen into H2, but Morgan Stanley said it remains cautious until Heartland can demonstrate sustained profitability and a consistent operating ratio below 100.

Morgan Stanley maintained an equal-weight rating on the stock and raised the price target to $12 from $8.

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