XPO Logistics, Inc.

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. It operates through two broad segments that include Transportation and Logistics.

Result Performance for the Year Ended 31 December 2021 – FY21

• The revenue rose to $12.8 billion in FY21 from $10.2 billion in FY20, primarily due to strong performance across the segment. The year-over-year increase in North American Less-Than-Truckload segment revenue reflects the rise in gross revenue per hundredweight, partially offset by a decline in average weight per day.
• 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.

Source: Company Reports, Analysis by Kalkine Group

Recent Update

• On 25 March 2022, the company announced that it had divested its North American intermodal business to STG Logistics, Inc. for cash consideration of ~$710 million, subject to a customary post-closing purchase price adjustment.
• On 8 March 2022, the company announced that it intends to separate its tech-enabled brokered transportation services from its less-than-truckload (LTL) business in North America; and plans to divest its European business and North American intermodal operation.

Outlook

Notably, its North American truck brokerage business continues to outpace far industry growth, driven by its XPO Connect digital brokerage platform. The company expects to sustain delivering double-digit volume growth in North American truck brokerage in 2022 and going forward. North American LTL is expected to produce a full-year adjusted EBITDA of at least $1 billion. Meanwhile, the company has achieved adjusted EBITDA in the range of $1.36-$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-$5.45, a year-over-year increase of 22% at the mid-point. It also expects to achieve a free cash flow of $400-$450 million.

Key Risks

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

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

Technical Overview:

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

Stock Recommendation

The company has delivered 6-months and one-year returns of ~-11.56% and ~-6.48%, respectively. The stock is trading lower than the average price of the 52-week low-high range for the stock at $59.22-$90.78, respectively.

The stock has been valued using a P/E multiple based on 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 P/E multiple (NTM basis), considering guidance for FY22 and progress in North American LTL Action Plan.

Considering the factors above, along with its decent outlook and healthy liquidity position, we give a “Buy” recommendation on the stock at the current market price of $68.64 per share, as on 09:48 am New York Time, USA (GMT-4) as of 4th April 2022.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

XPO Logistics, Inc. (XPO) is a part of Kalkine’s Global Big Money Product

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.