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 quarter Q1FY22

• Revenue grew to $3.47 billion in Q1FY22, compared with $2.99 billion reported in the previous corresponding period.
• The company witnessed a significant improvement in the net income from continuing operations at $489 million during the quarter, compared with $63 million in Q1FY21.
• Cash flow from operating activities stood at $200 million, and free cash flow was reported at $66 million in Q1FY22.
• It ended the period with $2 billion of total liquidity, with $1 billion of cash and equivalents and ~$1 billion of available borrowing capacity.

Source: Company Reports, Analysis by Kalkine Group

Recent Update

• As per an update on 22 April 2022, the company has introduced a carbon-offset shipping option for customers of its truck brokerage business in North America.
• On 18 April 2022, the company announced the expansion of its North American LTL network with the upcoming openings of two less-than-truckload (LTL) terminals – (1) The Adelanto, California terminal and (2) The Conley, Georgia terminal.
• On 12 April 2022, the company announced the appointment of David Phalen as senior vice president, pricing for the company’s less-than-truckload (LTL) segment, effective immediately.

Outlook

The company has raised its 2022 target levels and expects adjusted EBITDA to be in the range of $1.35 billion to $1.39 billion, including second-quarter adjusted EBITDA of $360 million to $370 million. A increase of over 100 basis points is expected y-o-y in North American LTL adjusted operating ratio, excluding gains on sales of real estate. The Group also anticipates free cash flow of $400 million to $450 million in FY22, with gross capital expenditures of $500 million to $550 million.

Key Risks

The company is prone to the impacts of macro factors that might disrupt the supply chain of the company, thereby leading to longer lead times and cancellations. Current high inflation levels also pose a threat to the input and labor costs and can impact the quality of the service provided.

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 returns of ~-33.29%. The stock is trading lower than the average of the 52-week high price of $90.78 and the 52-week low price of $50.54.

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 the raise in guidance forecast and decent performance.

Considering the factors above, along with its decent outlook and healthy liquidity position, we give a “Buy” recommendation on the stock at the closing market price of $50.87 per share, as of 09 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.

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