2 Analysts Find XPO Logistics Attractive After 20% Drop

Transportation and logistics solutions provider XPO Logistics Inc XPO caught investors off guard with a surprise outlook announcement for 2019.

Despite an initial shock, at least two Street analysts continue to recommend the stock.

The Analysts

KeyBanc Capital Markets' Todd Fowler maintains an Overweight rating on XPO Logistics with a price target lowered from $110 to $85.

Bank of America Merrill Lynch's Ariel Rosa maintains XPO Logistics stock at Buy with a price target lowered from $103 to $84.

KeyBanc: Growth Will Continue

XPO said Wednesday it now expects to record adjusted EBITDA growth of 12-15 percent in 2019, which disappointed investors, considering management guided its EBITDA growth to be a "base case" of 15-18 percent on its November earnings call, Fowler said in a note.

XPO left its 2018 EBITDA guidance of $1.585 billion and $625 million in free cash flow unchanged.

KeyBanc's conversations with XPO reveal that the company still expects to see growth across all of its business lines, although at a "more-measured pace" after recent strength, the analyst said.

XPO also said a target range better reflects multiple variables, including political woes in France and the United Kingdom — two countries that together account for 25 percent of revenue — and the U.S. trade environment.

Investors should consider becoming constructive on XPO's stock at current valuations based on multiple secular and company-specific opportunities, while strong free cash flow supports de-levering, Fowler said. 

Bank Of America: Overdone Selloff

XPO Logistics' stock is seeing its worst trading session since 2016, and the stock is now down nearly 50 percent since peaking in September, Rosa said in a research report. Shares are now trading at a discount valuation of 7.2 times EV/EBITDA versus the blended group average of 7.8 times EV/EBITDA.

The company's status as a "well-managed" business, with a diversified business line and encouraging growth prospects, is unchanged, the analyst said. 

XPO is still expected to post double-digit EPS and EBITDA growth that could prove to be sustainable for an "extended period," especially if management oversees new accretive M&A deals, Rosa said. 

BofA's revised $84 price target is based on 8.5 times EV/EBITDA, which marks a reduction from a prior multiple of 10 times. The downward multiple revision is justified due to the company's disappointing guidance announcement, the analyst said. 

Price Action

Shares of XPO Logistics hit a new 52-week low Thursday and were down 27.64 percent at $43.62 at the time of publication Thursday. 

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Photo courtesy of XPO Logistics.