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Global Big Money Report

XPO Logistics, Inc.

Feb 16, 2022

Investment Type
Mid - Cap
Risk Level
Rec. Price ($)

XPO Details

XPO Logistics, Inc. (NYSE: XPO) is engaged in the business of freight transportation. It is mainly a top-three provider of truck brokerage and less-than-truckload (LTL) capacity in North America. XPO assists companies in their supply chains by transporting their goods using pioneering technology. With a network of 771 locations globally and around 42,000 employees, it provides the truck capacity to 50,000 shippers.

Decent Performance in FY21 (For the Year Ended 31 December 2021)

  • XPO delivered a strong fourth quarter result, which led to solid growth for the year. The company reported the highest quarterly revenue in its history. Further, its adjusted EBITDA surpassed the guidance for both the quarter and the year.
  • The company has recorded an increase in its revenue to $3.36 billion in Q4FY21 from $2.94 billion in Q4FY20. Resultantly, total revenue rose to $12.8 billion in FY21 from $10.2 billion in FY20.
  • Adjusted EBITDA, a non-GAAP financial measure, increased to $323 million in Q4FY21 from $289 million in the pcp and, for the full year, adjusted EBITDA improved to $1.24 billion from $847 million in FY20.
  • Net income from continuing operations attributable to common shareholders increased significantly to $126 million in Q4FY21 versus $34 million for the same period in 2020 and, for FY21, net income from continuing operations stood at $323 million.
  • The company generated $656 million of cash flow from operating activities and $475 million of free cash flow for the full year 2021.

Exhibit 1: Performance Trend

Source: Analysis by Kalkine Group

On an Expansion Mode

In a progress towards its plan to drive growth and efficiencies in its North American LTL network, the company declared the expansion of the Less-Than-Truckload (LTL) Network with new terminals as well as maintenance shops and trailer manufacturing capacity. The company mentioned the opening of two less-than-truckload (LTL) terminals to increase customer service capacity in its North American network.

Outlined Strategy for its North American LTL Business

XPO has outlined a comprehensive LTL action plan that includes expanding its North American LTL door count by 900 doors, or approximately 6%, by year-end 2023 along with further improving network flow with targeted initiatives. Additionally, the company expects to further implement accessorial charges for detained trailers, oversized freight and special handling. The action plans also entail expanding the 2022 graduate count at the US driver training schools (approximately doubling the 2021 count) and substantially boost the count of units produced at its trailer manufacturing facility.

Decent Liquidity Position

The company holds $1.3 billion of total liquidity as of December 31, 2021, including $260 million of cash and cash equivalents and around $1.0 billion of available borrowing capacity and its net leverage stood at 2.7x. XPO is going as per plan to deleverage to a net leverage ratio of 1.0x to 2.0x by the first half of 2023 and attain its objective of an investment-grade credit rating.

Key Metrics

The company’s EBITDA margin increased to 9.2% in FY21 compared to 8.1% in FY 2017 and 8.0% in FY20. The ROE significantly improved to 16.8% in FY21 versus 5.3% in FY 2017 and 3.9% in FY20. The current ratio also improved to 1.05x in FY21 from 1.04x in FY20. The increase in the current ratio indicates that the company possesses better capabilities to meet short-term obligations.

Exhibit 2: Key Financial Metrics

Source: Analysis by Kalkine Group

Top 10 Shareholders: The top 10 shareholders together form ~49.02% of the total shareholding while the top four constitute the maximum holding. Notably, Jacobs Private Equity, LLC and Orbis Investment Management Ltd. are holding a maximum stake in the company at 10.39% and 9.68%, respectively, as also highlighted in the chart below.

Exhibit 3: Top 10 Shareholders

Source: Analysis by Kalkine Group

Key Risks

The company is exposed to various market risks pertaining to changes in interest rates and fluctuations in foreign currency exchange rates. Volatility in fuel prices could have an impact on its fuel surcharge revenue and could adversely affect its profitability. Further, it is susceptible to economic recessions in North America and Europe that could adversely impact its business.


Notably, the company’s North American truck brokerage business is continuing to far outpace industry growth, driven by its XPO Connect digital brokerage platform. Resultantly, the company assumes to sustain delivering double-digit volume growth in North American truck brokerage in 2022 and going forward.

Its North American LTL is expected to produce full-year adjusted EBITDA of at least $1 billion. Meanwhile, the company has guided to achieve the adjusted EBITDA in the range of $1.36 billion to $1.40 billion in FY22, a year-over-year increase of 11% at the mid-point. Further, XPO forecasts adjusted diluted EPS of $5.00 to $5.45, a year-over-year increase of 22% at the mid-point. It also expects to achieve free cash flow of $400 million to $450 million.

Valuation Methodology: Price/EPS Based Relative Valuation (Illustrative)

Technical Overview:



Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation

The stock has been valued using a Price/EPS multiple based relative valuation (on an illustrative basis) and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to peer average Price/EPS multiple (NTM basis) considering its record revenue generation in Q4FY21 and decent guidance for FY22. Also, XPO’s 2022 guidance expects the year of robust profitability for the shareholders. 

Considering the aforementioned factors, along with its decent outlook and healthy liquidity position, we give a “Buy” recommendation on the stock at the closing market price of $69.62 per share, up by 4.9% on 15th February 2022.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices


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