XPO Logistics Is A Logical Choice For Investors
2022.05.11 16:16
XPO Logistics Moves Up On Strong Results And Guidance
XPO Logistics (NYSE:XPO) has been working hard on a transformation plan that is guaranteed to deliver results for investors. To put it simply, the company is divesting itself of non-core assets and using the money to improve the balance sheet and grow the core business.
The results so far are, to be blunt, fantastic and yet the stock is still trading at a deep discount to its peers. Trading at 9.77X its earnings it is valued at fifty cents on the dollar compared to LTL peer Saia (NASDAQ:SAIA) and there is a spin-off in the works as well.
The company is going to spin off its truck brokerage platform as a standalone company and it is a move that we think will unlock shareholder value in both businesses.
XPO Logistics Has Blowout Quarter
XPO Logistics had a fabulous quarter and turned in results that outperformed even our inflated outlook for the company. The revenue of $3.47 billion is up 16.1% versus last year on strength in both the LTL and brokerage segments and beat the Marketbeat.com consensus by 775 basis points.
On a segment basis, the core LTL shipping segment grew by 14.86% while the soon-to-be spun-off brokerage segment grew by a stronger 17.4%.
Moving on to the earnings, the news gets even better with operating costs in decline as a percentage of revenue and pricing driving both top and bottom-line results.
This situation has earnings up triple digits in most comparisons and left the adjusted EPS at $1.25 or $0.32 better than expected and this is not where the good news ends.
The guidance is equally bullish and is expecting the momentum to carry into the end of the year. The EBITDA guidance of $1.35 billion to $1.39 billion not only reflects the Q1 outperformance, but an expectation for the remainder of the year to outperform the current consensus as well.
This is great news for the turnaround plan because the company is already ahead of its plan. The sale of the intermodal unit allowed execs to redeem $630 million of the $1.15 billion worth of outstanding senior notes and bring the leverage ratio down to only 2X.
This puts the company on track to hit the 1X to 2X target this year and opens the door to a possible dividend distribution at the end of the year.
The Analysts Are Buying XPO Logistics
The analysts have yet to come out with any commentary on XPO Logistics’ post-earnings release but their sentiment is bullish nonetheless. The 19 analysts rating the stock have it pegged at a firm Buy with a price target that is almost 100% above the current price action.
The Marketbeat.com consensus has been moving lower over the past year but this is in response to divestitures that have the company in the leanest, meanest operating condition it has been in for years.
Now that it appears the company is gaining traction with its streamlining and growth plans, we think the consensus price target will firm and perhaps begin to move higher by the end of the year.
The Technical Outlook: XPO Logistics May Have Hit Bottom
It’s too soon to call a reversal but the price action in XPO Logistics suggests it has hit a bottom. The question that needs to be answered now is if this is a temporary bottom or the actual bottom from which a reversal will take place.
If this is the actual bottom, we would expect to see price action continue to test support until a base can be built from which price action might rally.
In that event, a move above the short-term moving average would be bullish. If not, we would expect to see this stock hit a new low fairly quickly and possibly trend lower in the near to mid-term.
XPO Stock Chart
