XPO Logistics Gains 13% on Spin-Off and Divestiture Plans

In a bid to become a pure-play less-than-truckload (LTL) services provider and boost shareholders’ value, XPO Logistics, Inc. (NYSE: XPO) is planning to spin-off its truck brokerage businesses. The company has also communicated its intention to divest the European businesses and intermodal operations in North America.

The portfolio-overhaul plans have been considered favorable by the company’s board of directors and are anticipated to conclude in the fourth quarter of 2022. Investors’ sentiments toward the announcements are visible in a 13.1% hike in XPO Logistics’ share price on Wednesday. The closing price was $70.04 in the last normal trading session.

XPO Logistics provides LTL and truck brokerage services across multiple countries, including the U.S., Canada, Mexico, and the United Kingdom. The company is headquartered in Greenwich, CT.

Rationale Behind the Move

The spin-off will be tax-free for XPO Logistics’ shareholders and upon completion, will form two separate transportation companies (publicly traded). Both the players will gain from solid product offerings, a healthy balance sheet, and other compelling factors mentioned below.

To begin with, the truck brokerage business, which will be separated from XPO Logistics, will become a tech-enabled leader in its arena. Its XPO Connect digital brokerage offering, the capacity of roughly 80,000 truckload carriers, experienced team, solid customer base (which includes blue-chip players), and additional services are its appealing factors.

The truck brokerage business generated revenues of $4.8 billion and an operating income of $226 million in 2021. The total load growth was 29% year-over-year in the year. This company, after the spin-off, will be headquartered in Charlotte, NC.

Post the spin-off, XPO Logistics is expected to become one of the leading companies providing LTL (domestic and cross-border) services. Technological advancements, skilled teams, a surge in e-commerce businesses, recovering industrial activities, and a solid customer base will raise its competitiveness.

In 2021, this business generated revenues of $4.1 billion and an operating income of $618 million. It had 291 terminals, 12,000 drivers, 25,800 trailers, and 7,900 tractors exiting the year. Its headquarters will continue to be in Greenwich, CT.

Brief on the To-Be-Divested Businesses

As regards the divestitures, the company will be able to concentrate on the rest of the transportation service offerings.

Notably, the to-be-divested European operations include global forwarding, managed transportation, truckload, last-mile logistics, and LTL services. In 2021, the business generated $3.1 billion in revenues and had 207 locations.

On the other hand, the intermodal operation in North America provides rail brokerage and drayage services. In 2021, it generated revenues of $1.2 billion and had 44 locations.

Official Comment

The Chairman and CEO of XPO Logistics, Brad Jacobs, said, “Our two core businesses of North American less-than-truckload and tech-enabled truck brokerage are industry-leading platforms in their own right, each with a distinct operating model and a high return on invested capital. We believe that by separating these businesses through a spin-off, we can significantly enhance value creation for our customers, employees and shareholders, as we did with our successful spin-off of GXO last year.”

Stock Rating

Following the spin-off and divestiture news, Jason Seidl, an analyst at Cowen, reiterated a Buy rating on XPO Logistics and increased the price target to $117 (67.05% upside potential) from $115.

The analyst communicated that he sees the announcement positively and anticipates solid growth opportunities for the LTL-focused company. He added that the proceeds from the planned divestitures will help lower debts.

Overall, the Street is optimistic about XPO Logistics’ growth prospects, with the stock presently carrying a Strong Buy consensus rating. The average XPO Logistics price target of $96.42 suggests 37.66% upside potential from current levels. Over the past year, shares of XPO Logistics have gained 2.3%.

Investors’ Sentiment

The Stock Investors tool of TipRanks shows that investors currently have a Very Positive stance on XPO Logistics. The number of portfolios, with exposure in XPO Logistics, has increased by 16.2% in the past month.

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