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 FY21 (For the Year Ended 31 December 2021)

• 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.

Source: Company Reports, Analysis by Kalkine Group

Recent Update

• The company recently mentioned regarding the expansion of its less-than-truckload (LTL) Field Management Trainee Program, with an aim of graduating 100 participants in 2022.
• On 24 February 2022, the company announced that it has been honored by GlobalTranz for the second year. The company has been awarded Carrier Partner of the Year for its less-than-truckload (LTL) performance by GlobalTranz Enterprises, LLC.

Outlook

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 expects 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 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.

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.

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

Technical Overview

Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (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 Price/EPS multiple (NTM basis) (peer average) considering its record revenue generation in Q4FY21 and decent guidance for FY22.

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.

Considering the aforementioned factors along with its decent outlook, we give a “Buy” recommendation on the stock at the closing market price of $60.290 per share, down by 9.66% on 7^th March 2022.

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