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Why Shares of XPO Logistics Are Falling Today

By Lou Whiteman – Feb 27, 2020 at 1:49PM

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Near-term coronavirus fears are distracting from the company's long-term outlook.

What happened

Shares of XPO Logistics (XPO 1.93%) opened down more than 10% on Thursday before recovering somewhat as the day went on. The culprit appears to be coronavirus concerns, not any company-specific news, and investors should anticipate continued volatility in the days to come.

So what

XPO has grown to be a key cog in the global shipping industry, and there is ample reason for investor concern that a coronavirus-prompted trade slowdown will eat into current-quarter results. XPO and other shipping stocks have been under pressure in recent days as the outbreak has spread to new regions, leading to investor fears that the disruptions will be more widespread and prolonged than originally believed.

XPO-branded containers stacked at a port facility.

Image source: XPO Logistics.

The uncertainty comes at a difficult moment for XPO, which in January announced plans to explore selling one or more of its business units. There is some risk that the coronavirus outbreak will slow decision-makers at potential strategic or private equity acquirers, and perhaps extend the auction process.

Now what

Coronavirus has almost certainly already caused temporary cuts to global shipping volumes and is likely to impact first-quarter financial statements. But XPO was arguably less exposed to the outbreak when the virus was primarily impacting China, as it does not have a large outward-bound freight forwarding business from China.

The virus has since spread globally, and XPO's U.S. and European logistics businesses could be slowed as governments try to address the outbreak. But it seems likely that the impact will be temporary, and the sort of sophisticated buyers XPO is targeting with its asset sales are unlikely to let short-term disruptions impact long-term planning and deal interest.

XPO Chart

XPO data by YCharts

XPO announced it was looking to sell assets because management believes the stock is undervalued, and with the recent coronavirus-related decline, the share price is back near where it was when the announcement was made. There is likely continued volatility ahead as the outbreak story plays out, but for investors who can stomach a bumpy short-term ride, the coronavirus is no reason not to climb on board.

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

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