Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of XPO Logistics Gained 11% in January

By Lou Whiteman - Feb 5, 2020 at 1:05PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company is exploring sales to try to shed its perceived conglomerate discount.

What happened

Shares of XPO Logistics (XPO 0.60%) traded up 11.6% in January, according to data provided by S&P Global Market Intelligence, after the company said it was exploring selling one or more of its business units. XPO shares went on a wild ride in 2019, and if the first month of 2020 is any indication, this year could be just as interesting.

So what

XPO used a series of acquisitions to build a second-tier freight brokerage into one of the world's largest shipping companies, and shareholders were rewarded with a 3,000% gain during a 10-year period that ended in mid-2018.

An XPO package sorting facility.

Image source: XPO Logistics.

But the stock gave up about half of those gains in late 2018 and early 2019 due to criticism from a short-seller and the unexpected loss of a major customer. Even after a slow and steady recovery throughout 2019, the shares were still 30% off their all-time highs as of mid-January.

The shares got a boost after XPO said it believes it is suffering from the so-called conglomerate discount, meaning that investors are not properly valuing the different parts of its portfolio.

"We continue to trade at well below the sum of our parts and at a significant discount to our pure-play peers," CEO Brad Jacobs said in a statement. "That's why we believe the best way to continue to maximize shareholder value is to explore our options, while remaining intensely committed to the satisfaction of our customers and employees."

Now what

XPO said its North American less-than-truckload shipping unit, a major generator of EBITDA, will not be sold. But it appears a wide range of options are on the table. It's too soon to say what will be sold, or what the impact of the sale will be, but it seems likely XPO will announce something in the months to come.

Proceeds from sales could be used to either continue share repurchases or pay down some of its $7.32 billion debt load.

This is all going to take some time, but if the revamp goes to plan, investors would hold shares of a smaller, more specialized logistics company with a heavy focus on technology and, hopefully, a market valuation that is more in line with how management believes it should be valued.

Lou Whiteman owns shares of XPO Logistics. The Motley Fool recommends XPO Logistics. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

XPO Logistics, Inc. Stock Quote
XPO Logistics, Inc.
$60.48 (0.60%) $0.36

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/15/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.