XPO Logistics: European Unit Sale Could Create Value

XPO Logistics (XPO) is an American supply chain company with a global presence. The company’s primary service offerings include road freight management, truck brokerage, and less-than-truckload goods delivery. I am bullish on the stock. (See Analysts’ Top Stocks on TipRanks)

European Unit Sale

It’s been reported that XPO is in talks with various private equity firms regarding the sale of its European supply-chain business for around £4 to £4.5 billion.

The sale hasn’t been priced in by the market as no official deal has been announced yet. However, spin-off agreements usually end up being accretive to the seller’s stock price as soon as an official announcement occurs. The spin-off could bolster XPO’s balance sheet and open up attractive North America expansion plans.

I believe XPO would benefit from concentrating its assets in fewer jurisdictions. It would be able to take advantage of local synergies and increase its market share, subsequently leading to a more efficient business overall.

Earnings and Outlook

XPO made history during its third quarter when it reported £3.27 billion in revenue. According to the company’s CEO, Brad Jacobs: “We grew third-quarter gross and net revenue in truck brokerage by 62%, on a 37% increase in load count per day.

Our top 20 customers increased their total volume with us by 45%, and our share of wallet is trending up with key customers.” The firm’s outlook for 2021 remains bright. XPO’s management reckons that its year-end EBITDA will come in strong at £1.228 billion – £1.233 billion, which is £16 million more than its mid-year outlook.

In addition, XPO also restated its diluted EPS estimate to £4.15 – £4.25, from a previous estimate of £4.00 – £4.30.


The stock remains significantly undervalued on a five-year normalized basis. XPO’s non-GAAP P/E ratio is trading at a 51.3% discount to its five-year average. There is no sign of earnings slowing down either, with the stock’s PEG ratio trading at only 0.02.

Furthermore, the firm’s price/sales and price/cash flow ratios are 0.46x and 7.82x, respectively, indicating that the market hasn’t taken note of the stock’s growth just yet, and investing at this stage would be a “smart money investing stage” move.

Wall Street’s Take

Turning to Wall Street, XPO earns a Strong Buy consensus rating. Out of the 13 assigned ratings from analysts, there are 11 Buys, two Holds, and no Sell ratings. The average XPO Logistics price target is £100.62, implying 28.3% upside potential.

Concluding Thoughts

XPO will likely benefit from selling its European Unit, and the valuation metrics indicate that the stock is significantly undervalued.

Disclosure: At the time of publication, Steve Gray Booyens did not have a position in any of the securities mentioned in this article.

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