Goldman Sachs Analyst Upgrades Post-Spinoff XPO Logistics From Neutral To Buy

Goldman Sachs has re-evaluated its analysis of XPO Logistics XPO in the aftermath of its Aug. 2 spinoff of GXO Logistics with an upgraded rating from Neutral to Buy and a price target of $103.

Positive Considerations: XPO provides transportation services, primarily less-than-truckload (LTL) transportation and truck brokerage services. XPO defined the newly independent GXO as the “largest pure-play contract logistics provider in the world.”

Jordan Alliger, vice president and equity research analyst at Goldman Sachs, forecasted XPO’s revenue to grow year-over-year by 20% for 2021 and 5.3% in both 2022 and 2023, and also predicted an adjusted EBIDTA margin of 9.9% in 2021 that would expand by at least 50 basis points in 2022 and another 20 basis points in 2023 to 10.4% and 10.6%, respectively.

“Two thirds of XPO’s revenue is made up of LTL and truck brokerage with Europe trucking, last mile, managed transport and global forwarding making up the remainder,” Alliger wrote. “We anticipate truck brokerage volumes to remain strong currently, and increased contract rates to help buoy net revenue growth.”

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Potential Risks: However, Alliger also noted that XPO faced potential downside risks including a stalling economy hampered by new concerns over COVID-19, which “could limit volume growth, which would in turn potentially make it more difficult to achieve pricing gains and density needed to boost margin.”

Alliger also warned that the company could face problems if it is “unable to leverage technology and improved pricing programs into enhanced operating efficiency,” and newer entrants into the truck brokerage market could introduce competitive risks that currently do not exist.

XPO Price Action: At last check, XPO was trading at $83.84, closer to its 52-week high of $89.32 than to its 52-week low of $44.02.