XPO Logistics, Inc.

XPO Details

XPO Logistics, Inc. (NYSE: XPO) is a leading provider of freight transportation, mainly the top-three provider of truck brokerage as well as less-than-truckload (LTL) capacity in North America.

Result Performance (Q2FY21 Ended 30 June 2021)

Improvement in Total Revenue (in YoY): Total revenue increased to $5.04 billion in Q2FY21 versus $3.50 billion in Q2FY20. Notably, the transportation segment’s revenue stood at $3.19 billion in Q2FY21 against $2.13 billion in pcp and the logistics segment’s revenue stood at $1.88 billion in Q2FY21 against $1.40 billion in pcp.

Turnaround in Net Income (in YoY): Adjusted EBITDA grew to $507 million versus $172 million in Q2FY20. Operating income stood at $246 million versus an operating loss of $141 million in Q2FY20. Net income attributable to common shareholders stood at $156 million versus a net loss of $132 million in Q2FY20.

Key Data (Source: Company Reports)

Recent Update:

• On 18 August 2021, the company announced another growth milestone in the adoption of its XPO Connect digital freight marketplace, where downloads of the platform’s Drive XPO mobile app for truck drivers have surpassed 500,000 — more than triple the cumulative downloads at the same time last year.
• On 1^st September 2021, the company announced the partnership with the Hiring our Heroes Corporate Fellowship. 

Outlook:

The company updated the pro forma full-year 2021 financial targets for XPO and GXO. Additionally, the company has raised GXO’s 2022 target for adjusted EBITDA to the range of $705 Mn- $740 Mn, with the YoY organic revenue growth of 8%- 12% next year.

Key Risk:

The company is exposed to the economic slowdown as well as other factors that could decrease the freight volumes, both in North America and Europe. The COVID-19 circumstances, if continued for a longer period, could impact the business operations, results of operations, cash flows, and financial position of the company.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Stock Recommendation:

The company’s EBITDA margin and net margin for Q2FY21 stood at 9.5% and 3.1%, as compared to Q2FY20 result of 4.0% and -3.8%, respectively. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and the target price so arrived reflects a decline of low double-digit (in % terms). A slight discount has been applied to EV/Sales Multiple (NTM) (Peer Average) considering the risks associated with the business as well as lower gross margin in June 2021 as compared to the industry median. Also, the fluctuations in the fuel prices impact the company’s fuel surcharge revenue as well as could also impact the company’s profitability.

Considering the aforesaid facts, we give a “Sell” recommendation on the stock at the current market price of US$84.37 per share (Time: 9:45 AM, New York, NY, USA Time) on 14th September 2021.

 Technical Overview:

Chart:

Source: REFINITIV, Purple Color Line Reflects RSI (14-Period)

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.

Disclaimer

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