XPO Logistics, Inc.

XPO Details

XPO Logistics, Inc. (NASDAQ: XPO)  provides supply chain solutions to companies globally. The company is the second-largest contract logistics provider and the second-largest freight broker globally.

Result Performance – For the Second Quarter Ended 30 June 2021 – (Q2FY21)

• Total revenue increased to $5.04 billion in Q2FY21 versus $3.50 billion in Q2FY20, driven by a rise in revenues across both segments whereby 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.
• 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:

• As per the release dated 2 August 2021, GXO Logistics began its first day of regular trading on NYSX. GXO is the former logistics segment of XPO Logistics
• On 2 August 2021, the company stated that it has completed the spin-off of GXO Logistics, Inc., creating two independent, publicly traded companies. The separation was completed via a distribution to XPO stockholders of one share of GXO common stock for one share of XPO common stock

Risk:

The company is exposed to the economic slowdown and supply chain disruptions  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.

Outlook:

The company has raised GXO’s FY22 target for adjusted EBITDA to be in the ambit of $705-$740 million, with YoY organic revenue growth of 8% to 12% next year. XPO raised its pre-spin combined adjusted EBITDA target for FY21 to $1.875-$1.915 billion, driven by Q2FY21 performance.

• XPO FY21 pro-forma guidance: Adjusted EBITDA in the ambit of $1.195-$1.235 billion. Adjusted diluted EPS of $4.00-$4.30 per share. Free cash flow of $400-$450 million
• GXO FY21 pro-forma guidance: Revenue in the ambit of $7.5-$7.7 billion. Adjusted EBITDA of $605-$635 million. Net capital expenditures of $240-$250 million.

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

Technical Overview:

Weekly Chart –

Source: REFINITIV

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

The stock has been on a strong winning streak with sporadic incidences of price correction. It has given a higher close for the ongoing week while finding resistance and support on upward sloping trend lines thereby clearly demonstrating strength in the uptrend. The technical indicator RSI with a reading around 60 and a curve at the end pointing up, suggests strong bullish momentum for the stock.

Going forward, the stock may have an initial resistance around the upper Bollinger band of $89.85, and on decisively breaching the same, it might even go up to $93.22 where it will meet with stiff resistance. However, on price retreating, it might find support around $81.06. 

Stock Recommendation:

We have applied EV/Sales multiple based relative valuation (on an illustrative basis) and the target price reflects a rise of low double-digit (in % terms). We have applied a slight premium to peer average EV/Sales multiple (NTM basis) considering positive operating margin and net margin of 4.9% and 3.1% in Q2FY21 versus -4.0% and -3.8% in Q2FY20, respectively. Moreover, in Q2FY21, the company reported near-record net income and the highest revenue and adjusted EBITDA of any quarter in the company’s history.

Considering the aforementioned factors, strong business segment, and future growth strategy, we give a “Hold” recommendation on the stock at the current market price of $85.80 per share, up by 2.2% on 3^rd August 2021. 

Lyft, Inc.

LYFT Details

Lyft, Inc. (NASDAQ: LYFT) is one of the largest multimodal transportation networks in the United States and Canada. The company started a movement to revolutionize transportation and in 2012 it introduced the peer-to-peer marketplace for on-demand ridesharing.

Result Performance – For the Second Quarter Ended 30 June 2021 – (Q2FY21)

• The Rise in Revenue: Revenue stood at $765.0 million, up 125% YoY and 26% on a QoQ basis.
• Adjusted EBITDA for Q2FY21 stood at $23.8 million, an improvement of $304.1 million over Q2FY20 and an improvement of $96.8 million over Q1FY21. This also marks the first quarter Adjusted EBITDA profit. Adjusted EBITDA margin for Q2FY21  stood at 3.1% versus the Adjusted EBITDA loss margins of 82.6% in Q2FY20 and 12% in Q1FY21.
• Reported Contribution for Q2FY21 of $452.0 million versus $117.3 million in Q2FY20, up 285% YoY and up 34% QoQ. The contribution Margin for Q2FY21 was 59.1%, which was up by 24.5 percentage points YoY and up by 3.7 percentage points QoQ
• Reduced Net Loss: Net loss stood at $251.9 million versus a net loss of $437.1 million in Q2FY20. Adjusted net loss for Q2FY21 stood at $18.0 million versus an Adjusted net loss of $265.8 million in Q2FY20

Key Data (Source: Company Reports)

Risk:

The company is exposed to the risk of the pandemic-related impact on its business and operations, and its inability to forecast performance owing to limited operating history. Further, the business could be negatively affected by natural disasters, public health crises, political crises, economic downturns, or other unexpected events.

Outlook:

The company reported a significantly strong Q2FY21 result backed by growing momentum. The company grew Active Riders by over 3.6 million from Q1FY21, generated 125% YoY revenue growth, and reached Adjusted EBITDA profitability. In addition, this outperformance was backed by record hourly earnings. Further, in July 2021 driver earnings remained strong as demand for the company’s platform continued to grow despite the rise in reported COVID case counts. The company aims at becoming the world’s best transportation and it will continue to work in this direction by innovating consistently and making big bets.

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

Technical Overview:

Chart:

Source: REFINITIV

Note: The purple color line in the chart depicts RSI (14-period), while the yellow color line represents the trend line. The red and sky-blue color lines show 21-Period SMA and 50-Period SMA respectively, while green color histograms at the bottom of charts represent daily volumes.

LYFT's prices are trading with a negative bias for the past 4 months and sustaining below a downward sloping trend line, indicating a downside direction for the stock. On the daily chart, the leading indicator RSI (14-period) is trading in negative territory at ~47.31 levels. Prices are also sustaining below the trend following indicators 21-period SMA and 50-period SMA, further supporting a negative stance. Now an immediate resistance level for the stock appears at $63.10 while support is at $50.50 level.

Stock Recommendation:

Over the last nine months, the stock was up by ~+111.1% and in 1 year the stock increased by +90.4%. The stock is trading above the average price of the 52-week low-high range of $21.34-$68.28, respectively.

We have applied EV/Sales multiple based relative valuation (on an illustrative basis) and the target price reflects a decline of low double-digit (in % terms). We have applied a slight discount to peer mean EV/Sales multiple (NTM basis) considering the risks associated with the business as well as reduced short-term investments. Considering its trading level, we advise the market players to liquidate the stock.

Thus, we give a “Sell” recommendation on the stock at the current market price of $55.380 per share, down by 1.11% on 3^rd August 2021.

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.

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