XPO

Publicly traded companies mentioned herein: Amazon Inc (AMZN), CH Robinson Worldwide Inc (CHRW), J.B. Hunt Transport Services Inc (JBHT), Old Dominion Freight Line Inc (ODFL), XPO Logistics Inc (XPO)

Highlights

The presenter is long shares of XPO Logistics Inc (XPO), believing that investors are buying five very good businesses at their cyclical low. In January, the company announced they were exploring strategic alternatives, including the possible sale or spin-off of one or more of their business units, with the exception of their LTL business. This process was called off during the COVID-19 related downturn. XPO’s CEO, Brad Jacobs, has a history of selling off businesses he’s created in order to exit them, including United Waste, which was acquired by Waste Management in 1997. Based on this precedent, the presenter believes that Jacobs is still looking to sell off these businesses and exit XPO. He speculates that XPO won’t announce an official process, but the company will be opportunistic and try to find ways to create shareholder value. Over the next 6-12 months, he thinks it's likely that these businesses will be sold at a significant premium to where they are trading right now. XPO’s aggregate multiple is 8x 2021 EBITDA, while its comps trade significantly higher (ODFL, CHRW, and JBHT trade at 18x, 15x, and 11x respectively). At the beginning of the year, XPO was trading at $100/share and the presenter had modeled it was worth $130/share on a SOTP basis. These businesses are now coming back stronger than expected and have rerated significantly with respect to public comps. He believes that the company should now be worth $140/share on SOTP or ~70% upside from the current price of ~$83/share.