XPO Logistics Analyst Stays Bullish Despite Economic Headwinds, Big Customer Loss
Bank of America Merrill Lynch says continuing economic headwinds have led it to lower its earnings estimates for XPO Logistics Inc (NYSE: XPO), though it still recommends buying shares of a company that it says has long-term earnings growth potential.
The Analyst
Ariel Rosa maintained a Buy rating on XPO Logistics with a $65 price target.
The Thesis
Rosa lowered estimates for first-quarter earnings per share from 61 cents to 44 cents and full-year 2019 EPS from $3.60 to $3.35. BofA is also lowering its EBITDA estimates for XPO.
The cut in estimates comes with the continuation of economic headwinds — particularly in Europe, but also in North America, the analyst said.
A Loss From Amazon?
The other big issue is that XPO recently lost a significant amount of business from its biggest customer, Rosa said in the Wednesday note.
XPO hasn’t said who that customer is, but BofA and many others believe it is Amazon.com, Inc. (NASDAQ: AMZN).
When that became public back in February, XPO shares dropped more than 14 percent. The company has not confirmed that the customer is Amazon, the analyst said.
The loss of such a large amount of business caused XPO to report EBITDA well below fourth-quarter estimates, and it also said quarterly operating income in transportation declined significantly, by $25 million. XPO also said at the time that it would be closing facilities in Maryland, Kansas and California.
XPO then announced in March that it fired COO Ken Wagers, who had been lured away from Amazon less than a year before.
Rosa said Wednesday the carnage from Amazon's change in its shipping practices — or whoever the customer may be if it's not Amazon — may not be over.
"We believe the roughly $300 million of business that remains with this customer, primarily in logistics and last mile, could also be at risk, as XPO is already looking to replace the $600 million of previously lost revenue."
Price Action
XPO shares were up 1.93 percent at $56.38 at the time of publication Wednesday.
Related Links:
XPO's Results Have Amazon's 800-Pound Gorilla Marks All Over It
2 Analysts Find XPO Logistics Attractive After 20% Drop
Latest Ratings for XPO
Feb 2019 | Credit Suisse | Maintains | Outperform | Outperform |
Feb 2019 | SunTrust Robinson Humphrey | Maintains | Buy | Buy |
Feb 2019 | Morgan Stanley | Downgrades | Overweight | Equal-Weight |
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