Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of XPO Logistics Climbed in May

By Lou Whiteman – Jun 3, 2020 at 10:23PM

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 makes its case that it can drive through the pandemic.

What happened

XPO Logistics (XPO -1.04%) shares lost more than half of their value between mid-February and mid-March on fears the COVID-19 pandemic would cause a sustained recession and that the transport and logistics company was ill-prepared to deal with it.

Those fears in the months that have followed have receded, and as they have, the stock has staged a bit of a rally. Shares of XPO gained 18.1% in May, according to data provided by S&P Global Market Intelligence, getting back toward breakeven for the year.

So what

The pandemic has hit shipping hard, slowing global economies, cutting supply chains, and sapping demand for logistics and transport services. The entire sector took a hit as China went into a lockdown early in the year, and the pressure increased as the pandemic spread globally.

XPO was hit harder than most due to the company's $8 billion in total debt. The company prior to the pandemic was exploring the sale of large pieces of the business with the idea of paying down some of that debt, but called off the divestiture plan in late March due to market conditions.

Two XPO semi-trucks at a distribution center.

Image source: XPO Logistics.

XPO's early May quarterly earnings release helped to put investors at ease. The company missed consensus estimates for earnings and revenue but generated strong free cash flow in what is typically a light quarter and boasted $2.5 billion worth of liquidity and what CEO Brad Jacobs called "an ironclad business model."

The company has a lot of flexibility when it comes to capital expenditures, since much of what it had planned to spend in 2020 was designed to support growth initiatives. XPO also has no significant debt maturities before June 2022.

XPO and other shippers kept rising as the month went on, fueled by improving optimism the pandemic would be resolved and cities would soon begin to reopen.

Now what

XPO shares might be back to breakeven for the year, but the stock arguably still has room to run. The company today trades at an enterprise value 7.8 times EBITDA, well below a sampling of other transport companies.


Transport EV to EBITDA data by YCharts.

If anything, I believe XPO, with its investment in tech and growing relationship with top customers, over time can trade at a premium to most shippers. The company needs time to pay down its debt and prove those investments are worth it, but I wouldn't hesitate to buy in even after a strong May.

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.
$44.52 (-1.04%) $0.47

*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 10/03/2022.

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.