Seeking Alpha: XPO Logistics Sticking To Its Guns

XPO Logistics (NYSE:XPO) is quite possibly one of the most controversial names I follow, with every article I write seemingly bringing more than its share of "I'll believe it if/when I see it" skepticism on the company's growth-by-acquisition plans. There is no doubt that management's strategy is exceptionally aggressive and the company has shifted (or perhaps broadened) its strategy from asset-light truck brokerage to a more comprehensive third-party logistics (or 3PL) portfolio.

There are good reasons to be skeptical of stories like XPO Logistics. Rampant M&A makes it harder to suss out the real underlying performance of the business and creates opportunities for accounting that runs from ambitious to aggressive to outright wrong. On the other hand, the shares are up more than 80% from when I first wrote on them and the 3PL sector not only offers good underlying growth but numerous consolidation opportunities. I won't dismiss the risk that this is a big game of musical chairs, but I know that Wall Street can't help itself when it comes to growth and XPO Logistics could have a great deal more of that in store in the coming years.

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XPO Logistics Sticking To Its Guns

Seeking Alpha: XPO Logistics Sticking To An Aggressive Growth Plan

Every time I've written about XPO Logistics (XPO), I've heard from readers who simply do not believe that the company will succeed in its goal of buying or building its way into a leading spot in third-party logistics by 2016. Yet, the company continues to post strong organic growth and negotiate multiple M&A transactions, the latest being the acquisition of Pacer International (PACR).

Whether it's the bull market in general or a buy-in from institutional investors, the shares of XPO Logistics had a good 2013 and sit just below a 52-week high. Even with that strong performance, they don't appear to me to be unreasonably valued today.

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XPO Logistics Sticking To An Aggressive Growth Plan

Seeking Alpha: XPO Logistics Building Credibility In Aggressive Growth Targets

When I last wrote about XPO Logistics (XPO) in March of this year, I found the company's ambitions to be rather remarkable, but potentially very lucrative for shareholders. In the following four or five months, I didn't really second-guess my decision to "watch and wait" as the stock went nowhere fast. Then the company announced its largest-ever acquisition and the stock jumped to new highs before settling down a bit.

Six months later, it's hard not to like XPO Logistics even more. The company's combination of aggressive M&A and organic growth is building credibility that the 2016 target of $4 billion to $6 billion in revenue is attainable, not to mention the 5% EBITDA margin. A great deal could still go wrong between now and then and there are significant uncertainties about what the company's capital structure will look like at that point, but I think shareholders can still find meaningful value in these shares.

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XPO Logistics Building Credibility In Aggressive Growth Targets

Investopedia: J.B. Hunt's Bigger Challenge Today Is Expectations, Not Operations

The markets remind us over and over again that quality stocks often appreciate well beyond fair value, particularly when they become popular picks in attractive sectors. That would seem to be the case at J.B. Hunt (Nasdaq:JBHT), as it is quite difficult to call the stock's price a bargain by conventional means. While the Street's love for J.B. Hunt has been great for shareholders, it does come with a price, as expectations seem to be quite high for this well-run transportation company.

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Seeking Alpha: XPO Logistics Has Huge Ambitions, But Wall Street Has Real Doubts

It doesn't feel like a stretch to say that Wall Street loves logistics. From FedEx (FDX) to Hub Group (HUBG), from Landstar (LSTR) to JB Hunt (JBHT), most of this sector is trading very close to 52-week highs, even though economic activity in the U.S. has been pretty "meh" recently. While CH Robinson (CHRW) and XPO Logistics (XPO) are a bit further removed from their highs, I think the latter could be a very interesting opportunity even at these levels.

The ambitions of the XPO management team are nothing short of extraordinary - they aim to take a company that sits around the #20 spot in the U.S. truck brokerage with $280 million in revenue and grow it into the #2 player by 2016, with revenue in the range of $4 billion to $6 billion. That's an incredible goal and frankly Wall Street isn't buying it - or at least not showing a willingness to assume that XPO can grow at that rate and generate any sort of real free cash flow. If the Street is wrong and management is right, shareholders could be looking at a future multi-bagger here.

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XPO Logistics Has Huge Ambitions, But Wall Street Has Real Doubts