Shares of XPO Logistics (NYSE:XPO) 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.
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.
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."
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.