- XPO Logistics is poised for massive growth in the next few years. Here’s why.
Recently, Citigroup’s logistics equity team visited the headquarters of XPO Logistics in Greenwich, Connecticut and they were impressed. As the Citi team reviewed XPO’s plans for cost efficiencies, the company published a report this month that the XPO stock could hit $100 per share and then hit $200 per share over the next couple of years.
This is a big turnaround for the company as XPO saw its largest customer reduce the business by two-thirds. This was about a $600 million hit for XPO’s revenues in 2019. The trucking industry has also seen a slow down this year. Throughout the year, freight volumes have been down.
Citi’s logistics equity team — which was headed by senior research analyst Christian Wetherbee — said that XPO has a lot of potential.
“While we think it’s too early to really underwrite the Bull case for XPO, it’s worth noting the potential,” wrote Citi’s logistics equity team in a research note on November 12.
“Management believes (middle single-digit) revenue growth and margin expansion is the base case in a stable macro environment,” added Citi’s team in the note via Business Insider. “In addition, XPO has a 2022 target to increase profit by $700 million to $1 billion. Taken together, we believe there is a path toward $3 billion in annual EBITDA, which has the potential to drive XPO shares toward $200 over the next two-plus years.”
XPO Logistics Chairman and CEO Bradley Jacobs has been an aggressive dealmaker in recent years. One of XPO’s largest acquisitions was Ann Arbor, Michigan Con-way for $3 billion. XPO has spent well over $7 billion on acquisitions.
Now the company employs 100,000 people across 32 countries. And the company saw $17 billion in 2018 revenue.
To drive cost efficiencies, XPO is focused on four main initiatives. This includes XPO Smart, XPO Edge, XPO Connect, and automation. XPO Smart is a suite of tools that drives labor productivity. XPO Edge optimizes the LTL network — which is about 28% of the company’s bottom line. XPO Connect is the company’s digital freight brokerage service used by 37,000 carriers. And automation utilizes intelligent robots to boost automated picking and packing.
XPO held its first Tech Summit in Boston earlier this year and many investors attended the event. Amit Mehrotra of Deutsche Bank told Business Insider that it was one of the best investor and analyst events they have attended in years.
In an investor note earlier this year, Morgan Stanley executive director Ram Ravisankar pointed out that XPO’s role of technology evolved over the years. Ravisankar pointed out that technology has become a weapon for the company to gain market share.
Last year, XPO deployed about 5,000 warehouse robots throughout North America and Europe. And the company has plans to add many more to drive up productivity. The good news is that these autonomous robots were designed to work alongside employees rather than replace them.
6 River Systems CEO and co-founder Jerome Dubois pointed out that its collaborative fulfillment robots have been a strong fit with XPO’s high-volume warehouse environments.
“Our successful collaboration with 6 River Systems in the US has led to a seamless roll-out of the robots at our UK sites. Based on our pilots with retail apparel, the system handles peaks in consumer demand with near-perfect accuracy by complementing the work performed by our employees. The synergies are ideal for retail and e-commerce fulfillment this holiday season,” said XPO Logistics chief information officer Mario Harik in a statement.
