With the supply chain in tatters, logistics operations like XPO Logistics (XPO) have a great opportunity to be heroes in the market and make heroic gains as well. That’s what happened in yesterday’s trading session for XPO Logistics.
One day’s large gains may not make a trend, but XPO Logistics has a lot going for it. I’m bullish on XPO Logistics, thanks to the role it plays in the current field and what it could do thanks to its recent changes.
XPO Logistics’ last year in share prices has been comparatively stable. It’s spent the last year in the $60 to $90 per share range. The latest gain has the stock over 20% higher than its Tuesday low of $59.22.
The latest news that so dazzled investors featured XPO Logistics spinning off several parts of its operation. The company announced plans to spin off the brokered transportation arm of its operations into a separate company. It also plans to sell off both its European operations and its intermodal operations in North America.
Wall Street’s Take
Turning to Wall Street, XPO Logistics has a Strong Buy consensus rating. That’s based on 13 Buys and one Hold assigned in the past three months. The average XPO Logistics price target of $96.42 implies 33.8% upside potential.
Analyst price targets range from a low of $70 per share to a high of $119 per share.
Hedge Funds Like What They See
Investors were sufficiently happy to drive XPO Logistics’ share price back into the $70 range. Meanwhile, hedge funds continued ramping up their share buying to the highest levels seen in two years.
A look at TipRanks’ 13-F tracker makes it clear: hedge funds have been buying into XPO Logistics in ever-increasing values since October 2020 and are buying vastly more than they were.
A Ravaged Supply Chain Makes Heroes of Logistics
Essentially, as described by XPO Logistics Chairman and CEO Brad Jacobs, the company engaged in moves that investors were clearly looking for. Jacobs described it as “…one great company becoming two great companies” in an interview with CNBC.
Jacobs further described the “…large universe of investors…” looking to invest in less-than-truckload trucking. Meanwhile, Jacobs also noted the “…separate universe of investors…” looking to back a truck brokerage operation, which is what XPO Logistics is setting up separately.
As far back as January 2020, XPO Logistics has been exploring “strategic alternatives” to detach portions of its business and make itself more of a “pure-play” operation.
It’s hard to go wrong with investing in a company that clearly has investor interest at heart. When that company is also involved in addressing one of the biggest corporate problems around—supply chain issues—things only improve. With the supply chain still in disarray across multiple industries, logistics operations take on a whole new vitality.
The recent Russian invasion of Ukraine has only added to problems already seen throughout much of the field, from chip shortages to Seattle bus issues.
This sets up an excellent environment for XPO Logistics. First, and perhaps foremost, it’s already trading around its lowest price targets. This leaves substantial upside potential in play.
Second, it’s operating in an industry that’s already crucial to everyday life.
Third, the company’s top brass clearly has investors in mind, spinning off businesses to make its own much more of the pure-play that investors want. All of that adds up to a potentially very positive outcome.
Concluding Views
There’s little reason not to be bullish on XPO Logistics. The company is improving its focus with nearly every major transaction it makes. There’s something to be said for a bit of diversification, yes, but economies of scale tend to rely on a greater focus.
Operating in a field like logistics, meanwhile, presents opportunities for diversification in its own right. If one sector suffers a slowdown, another sector will likely be waiting to pick up the slack.
Whether it’s luxury goods or everyday food, it needs to get to shelves to have any impact. XPO Logistics helps make that happen, and it’s doing better at it every day. That should be plenty of reason to be bullish on this crucial part of life.
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