In this article, we discuss 5 best transportation stocks to buy now. If you want to read why we think transportation stocks are poised for growth in the future, read 10 Best Transportation Stocks to Buy Now. There you can also see some of the hottest transportation stocks loved by elite hedge funds.
XPO is a Connecticut-based transportation company that has over 50,000 businesses as customers worldwide, including 69 of the Fortune 100. The company has operations in over 35 countries. In the third quarter, XPO posted revenue of $4.22 billion, compared the Wall Street estimate of $3.86 billion. EPS in the period came in at $0.84, beating the Wall Street estimates of $.039.
For the full-year 2020, the company expects adjusted EBITDA of $1.35 billion, versus the consensus of $1.25 billion.
A total of 39 hedge funds out of 816 tracked by Insider Monkey held stakes in XPO entering the fourth quarter. Here is what Argosy Investors said about XPO in its 2020 Q3 letter:
“I purchased shares of XPO Logistics (XPO) based on our research of the trucking logistics industry. I believe trucking at present is a commoditized and low-return business. XPO Logistics crown jewel is its LTL (Less-Than Truckload) business. Old Dominion Freight Line (ODFL) has been an extremely successful company over the last few decades and its stock price appreciation and valuation reflect that. Their focus is providing LTL services and XPO Logistics is among its primary competitors.
Route-based businesses in general can be attractive business models because of the local economies of scale they enjoy. From uniform rental companies like Cintas to pest control companies like Terminix and many more, these businesses benefit from high route densities. You might easily imagine how one route-based company A may have the same revenue as another, Company B, but if the travel between stops represents 100 miles for Company A and 40 miles for Company B, Company B will be able to generate the same revenue as Company A but with less employees and less fuel and vehicle maintenance costs, or alternatively generate more revenue than Company A but with the same labor, fuel, and vehicle maintenance.
LTL logistics fit this route-based density model because the nature of LTL shipments requires combining multiple shipments together into full truckloads. The more customers an LTL shipper has, the more it is able to group those shipments together efficiently at warehouses. These warehouses group shipments heading to the same area together, and enable XPO to fill its trucks heading to any given destination as much as possible.
LTL and related services represent 2/3 of XPO’s revenue and truckload logistics (the commoditized piece) represents the rest. I think XPO’s investments in technology could enable additional benefits on the truckload side in the long-term, but I am not betting on that.
What is strange is that ODFL and XPO have roughly the same LTL revenues, but ODFL is valued at $23 billion, while XPO is valued at $13 billion. XPO is less profitable and growing more slowly than ODFL, which certainly accounts for some portion of the gap. Our bet is that XPO is highly motivated to close the performance gap over time, which would provide a double benefit because profits would increase at an accelerated rate and the market might value the business closer to where ODFL trades.”