This overloaded transport inventory has doubled in the last year and will continue to grow in 2025.

Trucking stocks don’t get much attention these days, but savvy investors know there are opportunities in every sector.

XPO (XPO -0.26%) is a perfect example of this principle. At a time when much of the trucking sector was mired in recession, XPO provided investors with phenomenal growth through investments and business improvements. In fact, the stock has doubled over the past year and the company has consistently outperformed expectations. Those results showed up again in the third quarter, with shares jumping 11.4% on Wednesday.

Revenue for the quarter rose 3.7% to $2.05 billion, beating estimates of $2.02 billion. But what really stood out this quarter was what the company was able to do despite lower volumes. Tonnage per day fell 3.9%, although this was in line with the broader industry decline.

While volumes declined, XPO achieved a 6.7% increase in profitability or price excluding fuel in its core LTL business in North America.

This improvement in price performance paid off in terms of profits. The adjusted operating ratio, which is the inverse of operating margin, improved 200 basis points to LTL 84.2% as the company works towards its goal of an 81% operating ratio by 2027.

XPO also made progress on other strategic priorities. The company lowered its claims ratio to 0.2%, down from 1.2% in 2021, thanks to service initiatives including employee training and improved packaging materials to protect cargo.

In addition, XPO is expanding capacity and launching new terminals. Now 21 of the 28 service centers acquired from Yellow when that company went bankrupt are open. As a result, adjusted earnings per share rose from $0.88 to $1.02, beating the consensus estimate of $0.91.

Why XPO’s momentum should continue into 2025

What’s most impressive about the company’s performance this year is that it operates in a generally weak freight environment.

The closely watched ISM manufacturing survey showed contraction in activity in the last six months and in 22 of the last 23 months, a clear drag on economic growth. freight industry.

However, there are good reasons to bet on the industry’s recovery in 2025. In an interview with The Motley Fool, XPO Chief Strategy Officer Ali Faghri noted that a cargo recession typically lasts 12 to 18 months, but has now been going on for almost two years.

Additionally, he said the Federal Reserve’s interest rate cuts and removal of election uncertainty should help the industry recover. Lower borrowing costs will lead to increased investment across the economy, and some businesses are holding off on making decisions until the election is decided.

If volumes pick up in 2025, XPO’s earnings could actually improve next year, thanks to expanded capacity and improved on-time and claims rates leading to higher profitability. Fagri also said the company will have 30% excess capacity once it finishes opening the service centers it acquired from Yellow, “which is typically where you as an LTL carrier should be at the bottom.” cycle.”

XPO is now the third LTL carrier in North America. Old Dominion Freight Line, The industry’s largest pure play company just reported an operating ratio of 72.7%, showing that XPO has plenty of room to improve profitability as it implements its strategic initiatives.

Given the improved service quality, higher earnings, and expected macroeconomic recovery, XPO looks like a smart buy.

Jeremy Bowman has positions at XPO. The Motley Fool has a position in and recommends Old Dominion Freight Line. The Motley Fool recommends XPO and recommends the following options: long calls for $195 in January 2026 on Old Dominion Freight Line and short calls for $200 in January 2026 on Old Dominion Freight Line. The Motley Fool has disclosure policy.