It has been a little over a year since I last wrote on XPO Logistics (NYSE:XPO), and I'd like to say that time flies when you're having fun, but that's not the case. As it concerns XPO, the company has used that intervening time to take a very big step toward its goal of being a market share leader along the waterfront of logistics and freight service, but at the cost of significant investor angst and a sharp re-evaluation of the "right" multiple for the business.
The share's value has fallen close to 40% since I last wrote, and my $50-plus fair value at that time was predicated on the company remaining a growth-oriented asset-light third-party logistics company. Instead, the company has pivoted toward a much more balanced asset-heavy/asset-light mix. While that isn't necessarily a bad strategic move, it does change the long-term complexion of free cash flow generation, the volatility of those cash flows, and the multiple the market will be willing to pay for the shares.
There seems to be a recurrent communication issue between the Street and the company, and that concerns me. I don't know if it stems from management being more freewheeling and flexible in its long-term plan than previously thought, or whether there's more of a "making it up as we go along" element to it. In any case, while I do see meaningful value here, management has a lot of work to do to reassure investors about its long-term strategy and about the true synergies of mixing asset-heavy and asset-light businesses in the transportation and logistics space.
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XPO's Painful Climb Toward The Top