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 First Quarter Ended 31 March 2022 – Q1FY22

• Revenue stood at $3.47 billion in Q1FY22, up 16% YoY, driven by solid segment performance, where North American Less-Than-Truckload generated revenue of $1.1 billion (up 15% YoY) and Brokerage and Other Services generated revenue of $2.43 billion (up 17% YoY).
• Adjusted EBITDA grew to $321 million in Q1FY22, up 15% YoY, enormously contributed by Brokerage and Other Services adjusted EBITDA, which stood at $164 million, up 31% YoY. In comparison, North American LTL adjusted EBITDA fell by 4% YoY to $205 million.
• Adjusted net income attributable to common shareholders grew to $145 million versus $89 million in Q1FY21. Adjusted diluted EPS stood at $1.25 versus $0.79 Q1FY21.

Source: Company Reports, Analysis by Kalkine Group

Recent Update

• On 24 May 2022, the company and IRONMAN Europe, Middle East, and Africa (EMEA) announced an extension of their current partnership through the 2024 season.

Outlook

Post adjusting for the sale of the intermodal operation, the company increased its FY22 target for adjusted EBITDA, which is expected to be between $1.35-$1.39 billion, including Q2FY22 adjusted EBITDA of $360- 370 million. North American LTL is projected to generate ~$1 billion adjusted EBITDA in FY22. Adjusted diluted EPS is projected to be between $5.20 and $5.60, excluding amortization of acquisition-related intangible assets and 117 million diluted shares outstanding at year-end 2022.

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/Earnings Per Share Based Relative Valuation (Illustrative)

Technical Overview:

Daily Price Chart

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

Stock Recommendation

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 strong guidance for FY22 and focus on tech-enabled brokered services platform, and company-specific initiatives to augment North American LTL business.

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 $52.17 per share, as on 9.42 am New York Time, USA (GMT-4) as of 31 May 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.