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Why XPO Logistics Inc. Stock Surged Today

By Jeremy Bowman - Dec 22, 2017 at 5:14PM

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Talk of a possible takeover bid from Home Depot sent shares of the heavy-goods delivery specialist soaring.

What happened 

Shares of XPO Logistics (XPO 4.50%) flew 14.4% higher Friday after Recode published an article reporting that Home Depot (HD 1.68%) had considered taking over the e-commerce specialist. Unsurprisingly, investors reacted positively to speculation about an acquisition.

Boxes move on a series of conveyor belts inside a warehouse.

Image source: XPO Logistics.

So what 

According to the Recode article, Home Depot has held internal discussions about making a bid for the freight, transportation, and logistics provider, whose market cap soared past $10 billion on the news. Part of Home Depot's justification for a bid seems to be to prevent Amazon (AMZN 4.11%) from taking over the company; the e-commerce giant has been making inroads into package delivery, including taking a stake in Atlas Air, an air cargo provider, buying thousands of truck trailers, and handling its own last-mile delivery with an Uber-like program called Amazon Flex. But what Home Depot's other rationales for a bid might be are less clear.

Now what

XPO is best known for last-mile deliveries of heavy and large items like furniture and appliances, partnering with IKEA and other such retailers. Home Depot essentially stopped opening new stores in 2008, and has invested profits, instead, in better in-store service and e-commerce, as well as returning capital to shareholders through dividends and share buybacks. Quietly, the company has become one of the biggest online retailers in the country, and sees e-commerce as an increasingly important part of its business.

Whether or not Home Depot will make an offer for XPO is unclear, but the news could spark a bidding war if Amazon joins the fray. Other retailers such as Walmart might also throw their hats in, as the delivery company would offer any buyer a unique set of assets at an affordable price compared to industry titans like FedEx and UPS.

Keep an eye on this stock for the next few months, as volatility is likely to follow today's news.

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Stocks Mentioned

The Home Depot, Inc. Stock Quote
The Home Depot, Inc.
HD
$300.95 (1.68%) $4.96
XPO Logistics, Inc. Stock Quote
XPO Logistics, Inc.
XPO
$53.20 (4.50%) $2.29
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$2,307.37 (4.11%) $91.16
Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$131.35 (-11.38%) $-16.86
United Parcel Service, Inc. Stock Quote
United Parcel Service, Inc.
UPS
$183.14 (1.88%) $3.37
FedEx Corporation Stock Quote
FedEx Corporation
FDX
$221.50 (5.62%) $11.78
Atlas Air Worldwide Holdings, Inc. Stock Quote
Atlas Air Worldwide Holdings, Inc.
AAWW
$72.71 (4.57%) $3.18

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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