XPO Logistics, Inc.

XPO Details

XPO Logistics, Inc. (NYSE: XPO) and its subsidiaries provide supply chain solutions globally. The company is the second-largest contract logistics provider and the second-largest freight broker globally.

Result Performance for the Third Quarter Ended 30 September 2021 – (Q3FY21)

• Total revenue increased to $3.27 billion in Q3FY21 versus $2.68 billion in Q3FY20. The company reported a growth in gross and net revenue in truck brokerage by 62%, on a 37% increase in load count per day in Q3FY21.
• The net income from continuing operations stood at $21 million in Q3FY21 versus $28 million in Q3FY20. Adjusted net income stood at $109 million in Q3FY21 versus $44 million in Q3FY20. Adjusted diluted earnings were $0.94 for Q3FY21 versus $0.42 for Q3FY20.
• The company generated $250 million of cash flow from operating activities and $185 million of free cash flow, a non-GAAP financial measure.

Performance Trend, Analysis by kalkine Group

Outlook:

The management raised FY21 guidance for adjusted EBITDA to $1.228-$1.233 billion, including Q4FY21 adjusted EBITDA in the range of $300-$305 million. Moreover, the company plans to expand the 2022 graduate count to more than double the nearly 800 graduates the company will have in 2021. In addition, it is significantly increasing production capacity at the trailer manufacturing facility, with the plan of almost doubling the YoY number of units produced in 2022. It is also allocating capital to expand North American LTL door count by 900 doors over the next 12-24 months to improve network-wide operating efficiency and support future revenue growth.

Risk:

The company is exposed to economic recessions and other factors that could decrease freight volumes in North America and Europe. The COVID-19 circumstances, if continued for a more extended period, could impact the business operations, results of operations, cash flows, and financial position of the company. In addition, the acquisitions are made in the past and future periods could be unsuccessful that may adversely affect the financial condition and results of the company.

Valuation Methodology: Price/Earnings Per Share Based Relative Valuation (Illustrative)

Technical Analysis

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

Stock Recommendation:

The company has delivered a 9-month and 1-year return of ~+12.14% and ~+40.14%, respectively. In addition, the stock is trading higher than the average of the 52-week high price of $90.78 and the 52-week low price of $56.888502.

The stock is valued using a P/E multiple-based illustrative relative valuation, and a target price so arrived reflects a rise of low double-digit (in % terms). Accordingly, a slight premium has been applied to P/E Multiple (NTM) (Peer Average), considering a higher fixed asset turnover at 0.83x in Q3FY21 versus the industry median of 0.41x and solid financial guidance for FY21.

Considering the facts above and current trading levels, we give a “Buy” recommendation on the stock at the closing market price of $78.60 per share, down 4.25% as of 5^th November 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.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices