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.

Click here for more:
XPO Logistics Leveraging A Hot Freight And Logistics Market

Hub Group Grabbing Share, But Backfilling The Margins Is Important

I can't fault for Hub Group's (NASDAQ:HUBG) growth strategy, as the company has used acquisitions and execution to build itself to mid-teens share of the domestic intermodal market and a top-five position in the domestic truck brokerage sector. I'm not worried about the growth potential in intermodal, as I think the market is only about 25% penetrated, but I would like to see the company make more progress on profitability as margins have slipped, free cash flow has become erratic, and recent trends in ROIC aren't so favorable.

I don't see anything unfixable about Hub Group, but the shares have enjoyed a good run since the election (up about one-third) and the valuation already seems to incorporate expectations for lower corporate taxes and increased economic activity. As is too often the case, then, this looks more like a "consider on a pullback" idea today, though I suppose more momentum-inclined investors may feel differently given the recent earnings report and the prospect of more clarity on pro-business policies from the new administration.

Read more here:
Hub Group Grabbing Share, But Backfilling The Margins Is Important

Seeking Alpha: XPO's Painful Climb Toward The Top

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.

Read the full article here:
XPO's Painful Climb Toward The Top

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.

Follow this link to the article:
XPO Logistics Sticking To Its Guns

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.

Continue here:
XPO Logistics Building Credibility In Aggressive Growth Targets

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.

Please continue below:
XPO Logistics Has Huge Ambitions, But Wall Street Has Real Doubts

Investopedia: Rails Seem To Point To A Respectable 2013

Many analysts and investors have worried about the outlook for growth in the United States in 2013, but railroad data continues to suggest an ongoing recovery/expansion in the economy. Although it's true that the rails have enjoyed an uncommonly long stretch of good performance relative to the markets, ongoing demand growth could continue to support the sector.

December's Data Looks Very Familiar
The Association of American Railroads reported that U.S. rail carload volume declined about 4% for the month of December relative to the prior year, while climbing more than 2% from November's level.

As has been the case for quite some time, coal and grain traffic declines were a major negative influence on the results. Coal volume declined by more than 13%, while export declines tied to this year's drought helped fuel a 14% decline in grain carload traffic. Excluding coal, carload traffic was up more than 3%, while traffic excluding coal and grain climbed 6%.

Please continue here:
http://www.investopedia.com/stock-analysis/2013/Rails-Seem-To-Point-To-A-Respectable-2013-UNP-JBHT-KEX-BRK-A0108.aspx

Investopedia: The Investment Case For Old Dominion

Investors may not be feeling all that confident about the health of the U.S. economy, but that's not really showing up in the transport stocks. Rails and truckers have been doing relatively well, and given that their demand is derived from economic activity, that's an encouraging sign. Old Dominion (Nasdaq:ODFL) is a challenging case for investors. On one hand, this is one of the most interesting and dynamic carriers out there, but the valuation takes a little getting used to for prospective investors.

Zigging While Others Zag  
Trucking is to some extent a commodity business - at least insofar as everyone offers the same basic service (moving your goods from point A to point B), and there is not a lot of room for unique pricing. But, that should not be taken to mean that trucking companies cannot stand out and make different strategic decisions.

To read the full story, please click here:
http://stocks.investopedia.com/stock-analysis/2011/The-Investment-Case-For-Old-Dominion-ODFL-ABFS-FDX-UPS1207.aspx

Investopedia: October Rail Data - A Tale Of 2 Economies

There is no question that times are still very hard for many people. Unemployment hovers in the 9% range, foreclosures and a depressing housing market weigh on many communities, and nobody seems to feel especially comfortable with where the economy is at. And yet, if you look at the rail data from the American Association of Railroads' "Rail Time Indicators," there are more signs of strength than you might imagine. While many (if not all recessions) seem to break some prior rule about what can, or cannot happen, in prelude to a recession, it is hard to see how recent data out of the transports is indicative of an economy toppling over.

October's Data  
After a rough patch in the spring and summer, it looks like rail traffic is back on the right direction. In the U.S., rail carloads rose 1.7% from the prior year and 0.5% from September. Excluding coal, the year-over-year growth was 2.1% and excluding coal and grain, the figure jumps to a healthy-looking 5.2%. Traffic levels are now closer to the peak year of 2006 than the trough year of 2009 - encouraging to those who will see further room for growth and perhaps discouraging to those who might ask "are things really better?"

Read more here:
http://stocks.investopedia.com/stock-analysis/2011/October-Rail-Data--A-Tale-Of-2-Economies-UNP-CSX-NSC-CP-GWR-JBHT-AAWW1107.aspx

Investopedia: J.B. Hunt - A La Intermodal

Despite concerns about economic activity, railroad volume, shipping container volume and the health of the trucking industry, goods are still getting shipped around the country and more and more of that shipping is being handled by intermodal carriers. That puts J.B. Hunt (Nasdaq:JBHT) in the driver's seat, and the company is certainly delivering strong results. 

Good Second Quarter Results, With a Catch  
In many respects J.B. Hunt had a great quarter. Operating revenue was up nearly 22% and, even excluding fuel surcharges, leaves 14% revenue growth. The company's intermodal business was the leader; growing 29% this quarter and making up nearly 60% of operating revenue. The company's dedicated contract services business also did well, with growth of 15%. Trucking was the laggard, coming in with just 4% revenue growth this period. 


To read more, please follow the link:
http://stocks.investopedia.com/stock-analysis/2011/J.B.-Hunt-A-La-Intermodal-JBHT-BRK.A-NSC-UPS-FDX-AAWW-ODFL0720.aspx

Investopedia: Bad Times For Arkansas Best

While it is true that the industrial sector relies upon the transports to get their products to market, and that a recovery in the economy should be good for transports, that story has not played out so well in the trucking space. Although railroads like Union Pacific (NYSE:UNP) and Canadian National (NYSE:CNI) have shot up, many of the truckers are still down on a multi-year basis.

With very disappointing first quarter earnings, leading less-than-truckload (LTL) carrier Arkansas Best (Nasdaq:ABFS) is offering some evidence as to why that is. While demand for transport is definitely getting better, there is not much pricing power in the market and rising costs are becoming a larger problem. Of course, those investors with a contrarian streak might see this as an opportunity to pick up shares of a company that has generally been one of the better operators within its group. (For more, see Transport Stocks Ready To Roll.)

Q1 Was Supposed to Be Bad, but Not This Bad 

It says something about the operating environment in the trucking space that Arkansas Best missed what were already pretty uninspiring estimates. Oddly enough, the company did fine on the revenue line - revenue jumped almost 21% from last year and surpassed the average estimate. Even here, though, are signs of some of the challenges in the business - tonnage per day was up over 17% and there was a nearly 16% jump in shipments, but weight per shipment increased just 3% and revenue per hundredweight was up just a bit over 2%.

Please click the link for the full piece:
http://stocks.investopedia.com/stock-analysis/2011/Bad-Times-For-Arkansas-Best-ABFS-CNW-YRCW-ODFL-FFEX-KNX-JBHT0426.aspx

2010 - The Year On The Rails

There has been a long-held theory in the stock market that the performance of transport stocks has a great deal to say about the health of the economy and the direction of the stock market. If that concept still has legs, then the performance of the railroad sector has to be encouraging for the health of the U.S. economy. On the whole, the railroad sector (which often includes companies that supply the operators as well as the operators themselves) rose about 30% for the year - making it one of the leading sectors in the market.  


All About The Traffic
It seems beyond question that the ongoing strength in rail companies and their stocks has been a product of ongoing strength in rail traffic. Around February of this year, average weekly carload numbers finally climbed above the very depressed levels of 2009. Since then, every month has seen year-on-year carload growth. That has given rail operators a two-fold boost - the companies can not only make more money on the volume (as well as stronger pricing), but can better leverage their very high fixed operating costs. (For more, see Top Performing Railroad Stocks.)

Class 1's Were Not Held Back
With widespread traffic growth and no major strikes or labor disputes, Class 1 railroads in the U.S. and Canada all performed well in 2010. As is so often the case, improving conditions had the greatest benefit to what had been the notable lagging operator. For years, Union Pacific (NYSE:UNP) suffered with under-priced long-term contracts, ineffective surcharges and weak operating performance. Although Union Pacific is still not a top operator, the company has made some significant improvements and the stock led the sub-sector with roughly 40% gains.


Please click below for the full piece:
http://stocks.investopedia.com/stock-analysis/2010/2010-The-Year-On-The-Rails-UNP-NSC-CNI-CP-KSU-GWR-JBHT1229.aspx