XPO Logistics achieves strong results and guidance
XPO Logistics (NYSE: XPO) has worked hard on a transformation plan that is guaranteed to deliver results for investors. Simply put, the company divests itself of non-core assets and uses the money to improve its 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 big discount to its competitors. Trading at 9.77X its profit, it is valued at fifty cents on the dollar compared to LTL peer Saia and a spin-off is also in the works. The company is going to spin off its truck brokerage platform as a standalone company and it’s a move that we believe will unlock shareholder value in both companies.
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XPO Logistics has Blowout Quarter
XPO Logistics had a fantastic quarter and delivered results that even outperformed our over-optimized business outlook. Revenue of $3.47 billion is 16.1% higher than last year thanks to strength in both the LTL and brokerage segments, beating the Marketbeat.com consensus by 775 basis points.
On a segment basis, the core LTL shipping segment grew 14.86%, while the soon-to-be-spun off brokerage segment grew a stronger 17.4%. Moving on to revenue, the news gets even better with declining operating expenses as a percentage of revenue and pricing driving both top and bottom line results. This situation has seen profits rise triple digits in most comparisons and adjusted EPS at $1.25 or $0.32 is better than expected, and this is not where the good news ends.
The outlook is also bullish and expects the momentum to continue towards the end of the year. The $1.35 billion to $1.39 billion EBITDA forecast reflects not only the outperformance in the first quarter, but also an expectation for the remainder of the year to outperform the current consensus. This is great news for the turnaround plan, as the company is already ahead of its schedule. The sale of the intermodal unit allowed executives to redeem $630 million of the $1.15 billion in outstanding senior notes and reduce the leverage ratio to just 2X. This puts the company on track to hit its 1X to 2X target this year and opens the door to a potential year-end dividend payout.
The Analysts Buy XPO Logistics
Analysts have not yet commented on the release of XPO Logistics’ post-profit earnings, but their sentiment is bullish Nevertheless. The 19 analysts reviewing the stock have pegged it to a solid Buy with a price target close to 100% above current price action. Marketbeat.com’s consensus has declined over the past year, but this is in response to divestments that have left the company in the leanest, most vile operating condition it has been in for years. As the company appears to be gaining momentum with its streamlining and growth plans, we believe the consensus price target will turn solid and may rise towards the end of the year.
The technical outlook: XPO Logistics may have bottomed
It’s too early to call a reversal, but the price action in XPO Logistics suggests it does hit a bottom† The question that now needs to be answered is whether 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 price action to continue testing support until a base can be built from which price action could rise. In that case, a move above the short-term moving average would be bullish. If not, we expect this stock to hit a new low pretty soon and possibly go down in the near to medium term. 
