After a massive rise of around 3x from its March 2020 lows, at the current price of $122 per share, XPO Logistics stock(NYSE: XPO), a logistics and transportation company, appears to be fully valued. XPO stock has rallied from levels of around $40 to over $120 off the March 2020 bottom compared to the S&P which moved 74%. XPO stock has significantly outperformed the market, due to better than estimated quarterly results and the company’s restructuring plans. Also, the stock is up 33% in the last one year despite revenue falling 2% y-o-y over the last four quarters. While the gradual opening up of the economy is expected to lead to higher demand for transportation, the stock appears to be richly valued when compared to its historical levels, making it vulnerable to downside risk. Our dashboard Buy Or Fear XPO Logistics Stock provides the key numbers behind our thinking.
The coronavirus crisis induced lockdown affected industrial activity and hit the industrial transportation demand. With lower fuel prices, energy related shipments were also impacted. Now that the economies have been gradually opening up, the demand for transportation has increased, aiding the XPO’s top-line growth in Q4 2020. Total revenue of $4.7 billion in Q4 2020 reflected a 13% y-o-y growth. The business has rebounded to pre-Covid levels across XPO’s service lines. More importantly, the stock price growth of late is being driven by the company’s announcement to spin-off its Logistics business, unlocking more value for its shareholders.
The recent surge in Covid positive cases could prove to be an impediment in the path of XPO stock price growth. But in the absence of another wave and re-imposition of lockdowns, the company’s business will likely see strong growth. Any further recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia.
Currently, investors seem to be buoyed by XPO’s positive revenue and earnings outlook based on the expected recovery in the economic activity, and that appears to be priced in the current stock price of $122, in our view. Even if we were to look at the forward earnings estimate of $3.88 for XPO in 2021, at the current price of $122, it is trading at a 31x P/E multiple, which is higher than the levels of under 20x seen in 2018 and 2019, making the stock appear vulnerable to downside risk.What if you’re looking for a more balanced portfolio instead? Here’s a high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.
See all Trefis Price Estimates and Download Trefis Data here
What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.