XPO Logistics (XPO)
By Mike Cintolo, Chief Analyst, Cabot Growth Investor and Cabot Top Ten Trader
From Cabot Wealth Advisory 8/25/16 Sign up for Cabot Wealth Advisory—it’s free!
Short-term, anything is possible—I wouldn’t be shocked if the market dipped for a few days, possibly on some “bad” Fed news. But all of my market timing indicators remain clearly positive, so I continue to expect higher stock prices.
One stock idea that I like today is more cyclical than I usually go for. But with a top-notch CEO and the business just reaching a major tipping point, I think it can do very well in the months ahead.
It’s XPO Logistics (XPO), which I wrote about in Cabot Top Ten Trader two weeks ago:
“XPO Logistics’ story all starts with CEO Bradley Jacobs, who has a history of taking a small company, aquiring dozens of small fish in a fragmented industry, and selling the combined company for huge returns years later. He’s done it in energy brokerage, waste management and heavy equipment rentals. Now he’s up to his old tricks with XPO Logistics, a transportation logistics firm, in which he bought a majority stake in 2011. (XPO is a leader in freight brokerage, last-mile logistics, contract logistics, intermodal and more.) Since then, Jacobs has done a ton of buyouts, including a move into the trucking industry itself with a $3 billion purchase of Con-way last year. The company’s constant expansion caused losses to grow; combined with the horrid market late last year, investors bailed out in a big way. But now, the stock is looking much better, thanks mainly to a blowout earnings report—in Jacobs’ words, the results “confirmed that we’re at a positive inflection point in the evolution of our business.” That mainly means that after years of gobbling up firms, XPO is now starting to crank out a ton of cash—in the second quarter, earnings leapt into the black and crushed estimates, free cash flow was solidly positive, and the company bumped up its guidance for the rest of the year. Analysts now see earnings of nearly $1.70 per share next year, and Jacobs has a 2018 target of at least $1.7 billion of EBITDA as he works on efficiency measures. Long-term, there’s not a ton of growth here; most of XPO’s businesses are growing organically in the single digits. But this story is about Jacobs’ ability to morph the company into a big leader in the transportation field, and the second-quarter report says that he’s well on his way.”
XPO has traded tightly since catapulting to multi-month highs on earnings two weeks ago. I like the potential but as always, proper entry points and position management are key.
For my latest advice on XPO and new stock leadership ideas every week, consider giving Cabot Top Ten Trader a try. Click here for more information.
Timothy Lutts, Chief Analyst, Cabot Stock of the Month
From Cabot Wealth Advisory 3/16/15 Sign up for Cabot Wealth Advisory—it's free!
XPO Logistic’s (XPO) headquarters are in Greenwich, Connecticut, home to many Wall Street investment wizards. These wizards, for the most part, don’t make anything. But they do deals very well, and that’s the story behind XPO.
In brief, the wizards behind XPO have spent the past few years acquiring companies in the highly fragmented transportation logistics industry, and consolidating operations to gain efficiencies.
As a result, today XPO is not only one of the fastest growing providers of transportation logistics services in North America, it’s also the third largest freight brokerage firm, the third largest provider of intermodal services, the largest provider of last mile logistics for heavy goods and the largest manager of expedited shipments.
To be clear, the company doesn’t own any trucks or employ any drivers; it contracts out those services in order to stay nimble. But it does have 197 locations and approximately 10,000 employees, and as of year-end2014, the company was facilitating more than 37,000 deliveries a day throughout the U.S., Mexico and Canada
That’s a drop in the bucket compared to UPS, which ships roughly a million packages and documents per day. But XPO is growing much faster, and investors are taking notice. A year ago, the stock had 161 institutional owners. Now it has 283.
And it’s likely to have far more once it actually turns profitable!
You see, all this investment has cost money, and so XPO hasn’t had a profitable year since 2010. But it has plenty of cash (approximately $1.1 billion) and it has a successful (so far) game plan.
Fourth-quarter results, released February 18, saw revenues mushroom 223% from the year before, to $831 million. Organic growth accounted for 39% of the increase, which is very impressive, while acquisitions accounted for the rest.
Looking ahead, the company expects to lose money for a while longer. But in 2017, it expects revenue of approximately $9.0 billion and EBITDA of approximately $575 million. (And where do you think the stock will be then?)
At the moment, XPO is in a long-term uptrend. Since the February 18 earnings report, the stock has surged from 42 to 46—and, impressively, held those gains while most stocks have pulled back.
If you like buying leading stocks, and you’re comfortable assuming the risk that comes from buying stocks at new highs, feel free to take a position here.
But what I really recommend is that you become a regular reader of Cabot Market Letter, which originally profiled the stock, and is your best source for similar great growth stories.
For 44 years, Cabot Market Letter has been guiding investors just like you. To see its complete array of market timing, stock selection and educational features, click here.
|XPO Logistics (XPO)
Five Greenwich Office Park
Greenwich, Connecticut 06831
|Index Membership: N/A
Industry: Air Delivery & Freight Services
Full Time Employees: 10,000
3/16/15 The fastest growing providers of transportation logistics services in North America