Deutsche Bank says 'buy' and sets XPO price target at $130
Rumors about what could be the first big M&A deal of 2018 broke today, and the markets responded quickly.
XPO Logistics stock shot up 13.8% percent in an hour on Friday afternoon on rumors that Home Depot has been holding internal discussions for months about acquiring the $9B logistics, freight hauling, and brokerage firm. XPO rocketed from $78.67 at 1:35 PM to $89.59 at 2:40 PM—before today, the stock had never broken the $80 mark.
According to Recode, which broke the story, Home Depot’s bid would be a defensive move designed to pre-empt an acquisition by Amazon (XPO Logistics counts both companies as customers). Amazon has been exerting more control over its supply chain—from building an air cargo hub in Kentucky to buying thousands of truck trailers--in recent years, and large shippers like Home Depot are reacting, trying to in-house more capacity so they don’t one day find themselves at Amazon’s mercy.
Neither XPO, Home Depot, or Amazon have offered public comments on the acquisition rumors. In 2015, XPO acquired Con-way for $3B and became the nation’s second largest LTL carrier, and also purchased Norbert Dentressangle, a large European transport, logistics, and freight forwarder, for $3.5B.
Donald Broughton, managing partner at Broughton Capital, explained on CNBC why XPO would be such an attractive target for Home Depot and Amazon: “XPO and what Brad Jacobs and his team have built—we’ve fundamentally liked this company for a very very long, for a number of years. Whether they’re acquired by Home Depot or acquired by Amazon, or whether they continue to be a standalone company, we like fundamentally what this team has built. It’s a strong transportation company that provides a need that is not fulfilled by FedEx and UPS but is in high demand as not only the depth of goods that are bought via e-commerce but the breadth continues to grow, almost exponentially.
When asked why Home Depot in particular would be interested in buying XPO, Broughton said, “What happens is you order a refrigerator, you order a stove, you order things that don’t fit through the FedEX or UPS sortation system—someone has to deliver it. And certainly XPO has become the leader in that part of the marketplace.”
Bascome Majors, an analyst at SIG, wrote, "We’ve consistently viewed XPO as not yet at the exit stage for CEO and ~14% owner Brad Jacobs, expecting him to follow through on his promise of several billions of dollars of new acquisitions in 2018 before considering a sale, and we maintain that view today. But rumored competing interest from two deep pocketed mega-caps (HD market cap ~$220B, AMZN ~$564B) will clearly drive shares higher unless those rumors are squashed, even if that interest wasn’t solicited by XPO."
Deutsche Bank analyst Amit Mehrotra rated XPO a 'buy' and said his conservative price target of $110 did not price in the effects of corporate tax reform, which would drive his mark upward to a staggering $130.
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