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

• 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.
• On 22 November 2021, the company declared its second annual shoe drive launch to benefit the non-profit organization Soles4Souls. The company’s shoe collection started on 30 November 2021 and will continue through December 2021.
• In the press release dated 18 November 2021, the company declared the appointment of Swati Sharma as senior vice president and treasurer, effective immediately.
• In the press release dated 20 October 2021, the company has announced the expansion of its relationship with Cainiao Network, the logistics arm of Alibaba Group, with the digital management of truckload transport in Spain for AliExpress.

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/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 9-months and one-year returns of ~-2.25% and ~+3.49%, 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 closing market price of $72.78 per share, down by 3.88% as of 13^th December 2021.

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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