Buying Into a Logistics Breakup
Why Real Money Columnist Stephen ‘Sarge’ Guilfoyle likes plans to release value in a key shipping company.
When a significant logistics company announced plans to break itself up recently, Real Money Columnist Stephen “Sarge” Guilfoyle took notice.
XPO Logistics (XPO) – Get XPO Logistics, Inc. Report said last month it is planning to split its core business into two units and shed its other two key businesses to achieve greater valuation for the business.
The company said it wants to split its brokered transportation services business from its “less than truckload” business in North America and also sell its North American intermodal business which is a rail/road combo.
“I think breaking the company up is a good idea,” Guilfoyle wrote in a recent Real Money column. “I do think I want to be long this name at some point before that happens.”
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XPO has an exclusivity agreement to sell these business units to a potential, but unnamed acquirer. The company also seeks to exit its European business by selling it or through a separate European listing.
CEO Brad Jacobs said the stock has been trading at a “conglomerate discount.” During his tenure he increased the company’s value by doing deals and spinning out the contract logistics business as GXO Logistics last year. This sale and division of its business units will increase value for the company, he said.
In February XPO gave guidance for adjusted 2022 EBITDA towards $1.36 billion to $1.4 billion and adjusted EPS towards $5.00 to $5.40, Guilfoyle noted.
“The firm’s net cash position is down, but so is existing long-term debt, cut almost in half over a year and a half,” Guilfoyle wrote. “The balance sheet, as a result, while not quite fortress-like, certainly looks better than it has.”
He noted that the stock was only trading 11 times forward looking earnings at the time of the breakup announcement, compared to FedEx (FDX) – Get FedEx Corporation Report trading at just nine times while United Parcel Service (UPS) – Get United Parcel Service, Inc. Class B Report traded at more than 15 times.