XPO (XPO) delivered a modest Q1 beat, but its valuation already reflects much of the upside, Morgan Stanley said in a note Thursday.

The investment firm said the company beat earnings before interest and taxes and earnings before interest, taxes, depreciation and amortization expectations, driven by productivity and efficiency gains, while management guided to stronger-than-seasonal Q2 operating ratio improvement on accelerating pricing and cost discipline.

Morgan Stanley also noted improving sentiment across less-than-truckload peers and signs of stabilization in demand, though it said clearer evidence of a sustained industrial recovery is still needed.

Structural risks such as excess capacity, competition, and share shifts could limit upside, with the stock trading at elevated and hard-to-justify multiples, according to the note.

Morgan Stanley maintained its underweight rating on the stock, but raised its price target to $105 from $95.

Shares of XPO were down 2.2% in Friday trading.

Price: 215.30, Change: -4.83, Percent Change: -2.19