XPO Shares Stage Steep Drop As Company's 2019 Earnings Growth May Fall Under Analyst Estimates

Shares of transport and logistics provider XPO Logistics Inc. XPO fell sharply at mid-day yesterday after the company set a range for 2019 earnings growth that may fall below analysts' estimates.

In a filing yesterday with the Securities and Exchange Commission, XPO said it told a group of investors it expects adjusted 2019 earnings before interest, taxes, depreciation, and amortization, or EBITDA, to grow by 12 to 15 percent. According to FactSet, a consensus of sell-side analysts had predicted 14.4 percent EBITDA growth for next year.

At the investor meeting, Greenwich, Conn.-based XPO affirmed that it plans to generate $625 million of free cash flow this year, and $650 million in free cash flow next year.

XPO's earnings results and forecasts are typically adjusted to account for events considered anomalies as they relate to long-term income or expenses. For example, XPO's spree of 17 acquisitions between 2011 and 2015 generated high acquisition costs that are unlikely to be repeated.

Shortly before 3 pm ET yesterday XPO shares were trading at $59.84 a share, down $6.85 a share. The shares traded as low as $58.40 a share, a roughly 50 percent decline from the high-water mark of $116.27 per share hit at the end of September. Trading volume was nearly 3 times normal levels, according to data from Barchart. Based on the most current share price, XPO's market capitalization stands a bit above $8.44 billion.

From 2012 through 2018, the price of XPO shares rose roughly 8-fold, a remarkable gain for a transport and logistics firm in such a short time span.

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The recent decline in XPO's shares has come even though the company continues to deliver what most analysts deem to be solid quarterly results. The company reported third-quarter profits that missed Wall Street's targets, and it lowered its full-year outlook, in part due to a bankruptcy filing by U.K. department store chain House of Fraser, for which XPO operated distribution centers.

According to 15 analysts polled by Barchart, 12 offered "strong buy" recommendations. Recently, rating agency Moody's Investors Service upgraded its ratings on about $3.2 billion of XPO debt, citing a "positive operating environment" in 2019 for transport and logistics companies, as well as XPO's strong performance.

Some analysts chalked up the stock price decline to investor impatience over XPOs slow return to the M&A game in 2018. At the end of last year, Brad Jacobs, XPO's founder, chairman and CEO, said the company planned to make 1 and perhaps 2 acquisitions this year. So far, it has not done an

Ironically, the fall in XPO share price may turn the prospective hunter into the hunted. U.K. publication The Loadstar wrote earlier this week that XPO could become an attractive takeover target, quoting an unidentified New York-based banker that the company could begin garnering interest as early as the first quarter. The Loadstar story appeared before yesterday's SEC filing and the subsequent decline in XPO shares.

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