XPO Details

XPO Logistics, Inc. (NYSE: XPO) is engaged in the business of freight transportation. XPO assists companies in their supply chains by transporting their goods using pioneering technology.

Decent Performance in Q1FY22 (For the Quarter Ended 31 March 2022)

• XPO has delivered a record quarterly revenue in Q1FY22 and its revenue increased to $3.47 billion from $2.99 billion in the pcp.
• Adjusted EBITDA, a non-GAAP financial measure, rose to $321 million in Q1FY22 from $279 million in the pcp.
• Net income from continuing operations attributable to common shareholders increased significantly to $489 million in Q1FY22 versus $63 million for the same period in 2021.
• The company generated $200 million of cash flow from operating activities and $66 million of free cash flow for Q1FY22.

Exhibit 1: Performance Trend

Source: Analysis by Kalkine Group

Spin-Off Of Tech-Enabled Brokered Transportation Platform

XPO plans to spin off its brokered transportation platform from its asset-based less-than-truckload business, with an aim to set up two separate, publicly traded companies with extensive growth opportunities in North America. In a significant step forward to this direction, recently, the company has filed a confidential Form 10 registration statement with the US Securities and Exchange Commission pertaining to this planned spin-off, which it remains hopeful to complete in the fourth quarter of 2022.

Deepened Association with IRONMAN Group

XPO has further fortified its partnership with the IRONMAN Group, the largest operator of mass participation sports globally, through extension of current collaboration through the 2024 season. XPO delivers logistics assistance for IRONMAN and IRONMAN 70.3® triathlon events through its dedicated fleet to transport equipment for races across Europe.

Notably, the teams of XPO drivers would be setting up the finish-line arch, tents, fencing, staging as well as merchandising fixtures in advance for 30+ events this year. 

Key Metrics

The company’s ROE grew sharply in FY21 over FY20. Further, the current ratio steadily improved to 1.05x in FY21 from 1.04x in FY20. The company’s cash conversion cycle also improved to 13.9 days in FY21 from 22.0 days in FY20.

Exhibit 2: Key Financial Metrics

Source: Analysis by Kalkine Group

Top 10 Shareholders: The top 10 shareholders together form ~52.39% of the total shareholding while the top four constitute the maximum holding.

Exhibit 3: Top 10 Shareholders

Source: Analysis by Kalkine Group

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 adversely affect its profitability. Further, it is susceptible to economic recessions in North America and Europe that could adversely impact its business.

Outlook

Driven by the better-than-expected performance in Q1FY22, the company has raised its full-year financial outlook. After adjusting for the sale of the intermodal operation, the company has raised its guidance on adjusted EBITDA for FY22 to $1.35 billion to $1.39 billion. The guidance also comprises second quarter adjusted EBITDA of $360 million to $370 million. North American LTL business is anticipated to contribute at least $1 billion to the full year adjusted EBITDA.

Further, XPO forecasts adjusted diluted EPS to remain in the range of $5.20 to $5.60 excluding amortization of acquisition-related intangible assets. It also expects to achieve free cash flow between $400 million to $450 million, excluding all transaction-related impacts.

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 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 robust financial performance in Q1FY22, improved guidance for FY22 and progress in the transformation of its North American LTL business.

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, we give a “Buy” recommendation on the stock at the closing market price of $47.66 per share, up by 3.59% on 14^th June 2022.

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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