This logistics business just announced it would acquire UX Specialized Logistics, a leading North American provider of last mile logistics services for major retail chains and e-commerce companies, from Seacoast Capital, for approximately $59 million. Last year, revenue and adjusted EBITDA for UX was $113.2 million and $8.2 million, respectively.
XPO Logistics (XPO)
from Cabot Stock of the Month
Bradley Jacobs’ first major achievement was the consolidation of small garbage collectors under the umbrella of United Waste Systems. In 1992, Jacobs took the company public, raising $41 million, and in August 1997, after having made 200 acquisitions, the company was sold to USA Waste Services Inc. for over $2 billion.
Act two was in the rental industry, where in October 1997, Jacobs began consolidating small equipment rental dealers under the umbrella of U.S. Rentals. Ten years later the company went public, and in 1998, United Rentals acquired U.S. Rentals for about $1.2 billion, creating the largest equipment rental company in North America. Jacobs stepped down as CEO in 2003 and as chairman and director in August 2007, and today United Rentals (URI) is doing fine without him, helmed by capable professionals.
Act three, and the one that’s ongoing, is Jacobs’ consolidation of the transportation logistics industry. It began in 2011, when he took the reins of XPO Logistics (XPO) after he and partners invested $150 million in the company. At the time, only 15% of trucking was outsourced to third-party brokers and inefficiency was rife; it was almost as if the hugely fragmented industry was just waiting for someone with Jacobs’ skills.
Today, XPO is not only one of the fastest growing providers of transportation logistics services in North America, it’s also the third largest freight brokerage firm, the third largest provider of intermodal services, the largest provider of last mile logistics for heavy goods and the largest manager of expedited shipments.
To be clear, the company doesn’t own any trucks or employ any drivers; it contracts out those services in order to stay nimble. But it does have 201 locations and approximately 11,500 employees, it serves more than 15,000 companies, and as of year-end 2014, the company was facilitating more than 37,000 deliveries a day throughout the U.S., Mexico and Canada.
The company is the number one provider of white glove last-mile logistics of appliances, furniture, electronics to homes and businesses. Its contract logistics division (primarily New Breed, which it acquired in September 2014 for $615 million) provides outsourced supply chain management services, focusing on industries with high-growth outsourcing opportunities like telecom/technology, retail/e-commerce, aerospace and medical equipment.
Its expedited transportation division places urgent shipments with ground and air carriers.
And its freight-forwarding division focuses on global export and domestic shipments.
Now, growth by acquisition costs money. Thus XPO has been consistently unprofitable since Jacobs took over. But the company has plenty of cash (approximately $1.1 billion), it has a successful game plan, and its story is becoming better known. A year ago, the stock had 161 institutional owners. Now it has 283. And it’s likely to have far more once the company actually turns profitable.
Analysts are projecting that XPO will earn 62 cents a share in 2016, while the company itself has a 2017 target of $9.0 billion in revenue and EBITDA (which is a rough measure of cash flow) of approximately $575 million (more than seven dollars a share).
When it comes to growth stocks, I’m not big on targets; I’m big on trends. I like XPO’s trend of acquisitions, and I like the trend of the stock as well. Today, the stock is slightly off last Friday’s high of 47.49, and it’s quite possible it will pull back to its 50-day moving average at 42, if not lower. BUY.
Timothy Lutts, Cabot Stock of the Month, www.cabot.net, 978-745-5532, March 24, 2015