The stock, however, could have fared much worse had it not reversed course later in the month: XPO gained nearly 20% between March 20 and the end of the month. The stock has already gained another 6% this month, as of this writing. So what's with the roller-coaster ride?
The COVID-19 pandemic clobbered the entire transportation sector in March, from shipping stocks to trucking, auto, airlines, and railroad companies, as global lockdowns hit movement of people and goods and stalled activity in trade and commerce. As one of the largest freight and logistics companies and the leading last-mile delivery provider in North America, XPO was bound to feel the pinch.
XPO shares, however, got a breather when the company made a surprise announcement on March 20: that it was aborting its plans to divest several business units in the wake of challenging market conditions.
Until February, when XPO's fourth-quarter earnings conference call was held, CEO Brad Jacobs was excited about the prospects of divesting four of the company's business units to "get more shareholder value creation," as he believed XPO as a whole was then trading at a "conglomerate discount," or a significant discount to the sum of its parts (as well as compared to its peers). "So we think the opportunity to create shareholder value in the here and now in a significant way is best served by exploring these options," Jacobs had said during the call.
Despite the appeal of greater potential value from a divested company, investors appear to have taken XPO's latest move in their stride, purely based on its timing.
Coronavirus uncertainty, depressed business activity, and fumbling global stock markets can make it difficult for any company not only to attract buyers, but also to find good offers for its assets. With fears of a recession now looming large, it's perhaps in XPO's best interest to call off any divestment plans right now, lest it end up selling high-valued businesses too cheaply. With the Senate also announcing a coronavirus stimulus package in the meantime, investors are hopeful that XPO won't suffer much damage, and can bounce back to make better strategic moves.