E-commerce play: XPO Logistics

Tapiwa Mangwana
Aug 8, 2017 · 4 min read

The retail landscape is changing and transitioning to e-commerce.

  • XPO Logistics is another alternative way to play e-commerce besides Amazon.
  • Management is leveraging strategic moves and is looking to grow its business to capture this growing addressable market.

The rise of Amazon has destroyed traditional retailers that have been heavily entrenched in brick and mortar stores. The e-commerce behemoth with its great innovation and disruption under the leadership of Jeff Bezos has changed the retail landscape. The U.S retail sector is a $5 trillion addressable market but the global scale is much bigger. Logistics and shipping is a business that is going to grow to support the e-commerce growth. A great way to play this theme besides Amazon is through XPO Logistics. Amazon uses this company for their last mile delivery services to Amazon prime members.

XPO Logistics is a global supplier of supply chain solutions, with 2 main segments Transport and Logistics. The Transportation segment provides multiple services to facilitate the movement of raw materials, parts and finished goods. The Logistics segment provides warehousing, distribution solutions and transport. Amazon uses this company for its last mile deliveries for Amazon Prime members.

In terms of revenue, XPO Logistics comes mainly from North America but they get a fair chunk of revenue from Europe and overseas markets. Although, North America provides most of its revenue Europe is becoming an important source of revenue. The company’s revenue segment is as follows:

Revenue by Segment

In 2016 Logistics Revenue was 37% and Transportation Revenue was 63%. 60% of Revenue came from the US. 39% of Revenue came from Europe(France, UK, Spain) 11% from other countries.

Key Lines of Revenue: — Contract Logistics, 37% of Revenue

- Truck Brokerage 8% of Revenue

- Last Mile 6% of Revenue

- North American Less Than Truckload 24% of Revenue

- Intermodal and Drayage 6% of Revenue.

- European Transport

- Global Forwarding

Management has made a couple of strategic moves in building this company. Since 2013 the company has made various acquisitions to bolster its business and growth. Here are all the M&A deals XPO Logistics has made: Acquisitions

August 16, 2013: 3PDinc. the largest heavy goods home delivery provider in North America.

December 28, 2013: National Logistics Management (a Landstar System business), North America’s largest online manager of expedited shipments.

March 31, 2014: Pacer International, Inc. the third-largest intermodal provider in North America and the leading provider of intermodal services between the U.S. and Mexico.

September 2, 2014: New Breed Logistics, a large U.S. provider of contract logistics solutions for blue chip customers.

June 8, 2015: French logistics group Norbert Dentressangle a leading contract logistics provider in Europe and the owner-operator of the largest truck fleet in Europe.

October 30, 2015: Con-way Inc. the second largest less-than- truckload transport provider in North America, with additional operations for global contract logistics, managed transportation, truckload and freight.

The CEO, Bradley Jacobs told Bloomberg that they have $8 billion right now that is aimed towards M&A. Jacobs and his management are most likely to be looking at making M&A deals in Europe and Asia as they look to capture global growth in e-commerce. As retail transitions with the internet to e-commerce last mile delivery is becoming important for companies. XPO Logistics is doubling down on its last mile delivery network. The CEO is planning to open 10 new last mile delivery hubs expected to open at the end of 2017. And management plans to open 85 more by end of 2018. This move would put XPO within 75 miles of 80% of the United States population.

Although the company is not cheap on traditional on Price to Earnings basis, the company trades at 9.5x on Enterprise Value to Earnings Before Interest and Taxes (EBITDA) basis. The company expects to grow its 2018 EBITDA to $1.6 billion (up 17%) and XPO Logistics expects to grow its organic revenue by 7.5%. I like the stock at this level and below $55 I am a buyer.

Disclosure: Cresco Investments has a long position in XPO Logistics(XPO).

This article was written by myself and David Tatenda Shoko and it expresses our own opinions.We are not receiving compensation for it. We have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article is intended for information, engagement & entertainment purposes only, and is not to be construed as investment advice or direction. Investors are strongly encouraged to perform due diligence and/or consult with their financial advisor.

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