Stifel: Limited synergy in rumored XPO sale to Home Depot

The investment bank said Monday that it doesn’t see XPO Logistics seeking a grand exit just yet, adding that it is difficult to envision much in the way of shareholder value for Home Depot in acquiring the fast-growing freight transportation provider.    Several media outlets in late December suggested that home improvement retailer The Home Depot has been considering an acquisition of the diversified logistics provider XPO Logistics following speculation that e-commerce giant Amazon had been mulling a bid of its own.
   But the logistics and transportation practice of investment bank Stifel is throwing some cold water on those rumors, and on Monday said that a Home Depot-XPO deal would have made little sense from a synergy perspective.
   “We are assuming any deal would take place at our newly established target price of $120, or a 50 percent premium to XPO’s trailing 30-day average share price,” Stifel said in a note to investors. “That implies a takeout multiple on (trailing 12-month earnings before interest, tax, depreciation and amortization) of nearly 15 times. With Home Depot trading at a TTM EBITDA multiple below that, it’s not clear if Home Depot would even be able to find enough synergies in this deal to generate shareholder value from this transaction.
   “We would be surprised if XPO derived more than 3 to 4 percent of its overall revenue from Home Depot,” it added. “So where would the synergies be coming from again?”
   Stifel also noted XPO has a “war chest” of $8 billion for mergers and acquisitions of its own, and the company has updated its share model to account for $5 billion of that money to be deployed in 2018, likely in the second half of the year.
   “Unless the XPO M&A team cannot find a high quality, sizable, reasonably priced ‘needle mover’ that synergistically complements the company’s existing operations, we think XPO is at least a couple years away from seeking a full blown exit strategy,” Stifel said. “There will be time for a grand strategic exit for master consolidator and XPO CEO, Brad Jacobs, sometime in the medium term future.”