XPO Logistics, Inc.

XPO Details

XPO Logistics, Inc. (NYSE: XPO) is engaged in 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 Q3FY21 (For the Quarter Ended 30 September 2021)

• The revenue increased to $3.27 billion in Q3FY21 from $2.68 billion in Q3FY20.
• Net income from continuing operations attributable to common shareholders stood at $21 million in Q3FY21 versus $28 million in the pcp.
• The company generated cash flow from operating activities of continuing operations of $250 million and free cash flow of $185 million in Q3FY21, a non-GAAP financial measure.
• The company holds over $1.2 billion of total liquidity as of 30 September 2021, including $254 million of cash and cash equivalents and around $993 million of available borrowing capacity.

Source: Company Reports, Analysis by Kalkine Group

Recent Update

• On 3 January 2022, the company announced that Troy Cooper had stepped down from his current role as president, effective 27 December 2021. However, he will continue working as a senior advisor through 30 June 2022.
• As per the press release dated 16 December 2021, Bradley Jacobs, Chairman of XPO Logistics (NYSE: XPO) and GXO Logistics (NYSE: GXO), purchased his total stock sales of the two companies to approx. a billion dollars since declaring the spin-off of XPO's warehousing business to GXO last December.
• As per the press release dated 7 December 2021, the company has again gained the reputation of being one of America’s Most Responsible Companies named by Newsweek.

Outlook

The company expects to achieve adjusted EBITDA in the range of $300-$305 million in Q4FY21, implying adjusted EBITDA between $1.228-$1.233 billion for FY21. Resultantly, the midpoint of the updated full-year guidance increased to $1.231 billion - $16 million higher than the prior midpoint. Further, the company forecasts adjusted diluted EPS of $4.15-$4.25, from a previous target of $4.00-$4.30, and expects achieving free cash flow of $425-$475 million, from a prior target of $400-$450 million. The company’s FY21 pro forma financial targets are arrived after considering that the August 2021 spin-off of the logistics segment had been completed on 1 January 2021.

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 company has delivered 6-month and one-year return of ~-8.60% and ~+1.49%, respectively. The stock is trading lower than the average price of the 52-week low-high range for the stock at $63.288313 – $90.78, respectively.

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) (Peer Average), considering its record revenue generation and a solid bottom line in Q3FY21 as well as improved guidance for FY21

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 $72.38 per share as of 6^th January 2022 (Time: 9:53 AM, NY, USA).

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.