Tuesday, June 19, 2018

XPO Logistics Leveraging A Hot Freight And Logistics Market

One of the pleasures of following XPO Logistics (XPO) has been listening to the various and sundry comment section prophets of doom call for XPO's imminent collapse - back at $30, $50, $75, and so on. There have most definitely been some big corrections along the way, but management has demonstrated that not only can it assemble a high-quality broad-ranging freight and logistics franchise but also run it well. A debt-rich balance sheet, economic sensitivity, and a desire for more deals are all risk factors to varying degrees, but XPO has carved out strong positions in areas like truck brokerage, forwarding, less-than-truckload (or LTL) trucking, last mile logistics, and contract logistics.

Valuation is a much more significant issue for me now, though. Even if XPO Logistics can grow at a pace similar to what companies like Old Dominion (ODFL), J.B. Hunt (JBHT), Hub Group (HUBG), and C.H. Robinson (CHRW) have managed and push FCF margins into the mid-single-digits, the implied returns aren't that impressive, and the shares are likewise not all that cheap on a forward EV/EBTIDA business compared to a blended multiple based upon its end-market exposures.

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XPO Logistics Leveraging A Hot Freight And Logistics Market

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