Are Investors Unfairly Punishing XPO Logistics?

• XPO Logistics, Inc. XPO has seen a decline of more than 32 percent in its share price over the past three months.
• Macquarie’s James Clement has maintained an Outperform rating and price target of $48 on the company.
• Clement believes that the pullback in the stock following XPO Logistics’ announcement of its intention to acquire Con-way, Inc. CNW offers a buying opportunity.

Clement expects capacity conditions to become more constrained in the near future, and if XPO Logistics intends to be a company with over $15 billion in revenues, it needs to be able to offer efficient delivery contract services, which might not be viable with the use of small, independent carriers.

Con-way offers “good value,” which suggests the possibility of a competing bid. However, a competing bid would need to come in before the offer period of 30 days is over.

According to the Macquarie report, “With a mix of TL, LTL and Menlo Logistics, we’re not convinced all of Con-way is a natural fit for any of the well-known public truckers, but we would not rule out interest from private equity.”

However, given that private equity usually prefers to stay away from bidding fights, Clement expects XPO Logistics to be able to acquire Con-way, which would be favorable for the former company.

“Investors are behaving as if Con-way assets will be a dilutive-drag on XPO and that doesn’t make sense, in our view,” Clement added.