XPO Logistics

Ticker
$XPO
Industry
Logistics
Type
Spin-off
Rating
Not Rated
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XPO is the culmination of roll-up effort from famed roll-up artist, Brad Jacobs (who built what is now United Rentals and Waste Management). Jacobs took XPO from a few hundred million in sales back in 2011 to $16bn+ in 2020.

In 2021, XPO spun off its “contract logistics” (i.e. warehousing and fulfillment) business. Again in 2022, they announced they’d be splitting up the asset-light freight brokerage business from the asset-based LTL business.

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Capitalization (1Q22) — There are 115m shares outstanding x $60 share price = $6.9bn market cap. Net debt is $2.6bn for a $9.5bn enterprise value. 2022 guidance calls for $5.40 in EPS (11x PE) and $1.37bn EBITDA (<7x EV/EBITDA).

Notes

LTL carve-out financial information from 2015-2021:
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Competitor valuations:
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**Why do ArcBest and Yellow trade at huge discounts while ODFL trades at 16x EBITDA?

Resources

March 2022 — spin off presentation: freight brokerage / LTL

Analysis

August 2022 — VDL: quick value
July 2022 (1Q22) — pre-spin thoughts

It looks like the XPO LTL segment has EBITDA margins (20%+) somewhat closer to ODFL (30%+) rather than ARCB/YELL (12% or less). Saia also has low 20% margins and trades near 10x EBITDA. Perhaps this should lead the LTL business to trade at least closer to Saia at 9.5x EBITDA.

On the freight brokerage side, both EXPD and CHRW trade at 10x EBITDA so XPO’s brokerage unit should be similar.

It’s possible the sale of the European segment could leave XPO entirely debt free by end of 2022.

If LTL is a $1bn EBITDA business, brokerage is a $300m business, and add in $300m for corporate costs and dis-synergies = $1bn overall EBITDA and a zero net debt balance sheet. Trading at 9x, the stock would be $78; at 10x it would be $87. Those are 30-45% returns on the current share price with a hard catalyst to get there.

A disappointing European sale or underperformance at each business unit could be a deterrent to that thesis.