Shares of XPO Logistics (NYSE:XPO) are up over 10% this morning after the company announced that it would be spinning off its truck brokerage business. XPO’s current freight transportation business will focus only on less-than-truckload (LTL) trucking. LTL shipping is when a truck carries items from a variety of customers. In addition, the ticker symbol and management of XPO stock will remain intact.
So, what else should investors know about the spinoff? Let’s take a look.
Why Is XPO Logistics Up Today?
The freight transportation company also announced that it would divest its European business through a “sale or listing on a European exchange.” Furthermore, the company has an agreement with an unnamed buyer for its intermodal shipping business. If the agreement falls through, the shipping business will be packaged into the spinoff.
XPO’s truck brokerage business performs services such as “last mile delivery, freight forwarding and managed transportation.” The business is expected to trade publicly under a new name by the end of this year.
So, why is one of North America’s largest logistics companies splitting itself up? As CEO Brad Jacobs told CNBC, “There’s a large universe of investors who want to invest in a pure-play like LTL.” In addition, XPO expects the market capitalization of the split companies to exceed XPO’s current market cap. This is because shares of XPO stock trade at a “conglomerate discount.”
The spinoff announcement follows last year’s spinoff of XPO’s contract logistics business. The logistics business now trades under the symbol GXO on the New York Stock Exchange. Jacobs added that:
“We learned from the GXO spin that when you have a management team doing one thing, they’re more focused and fit for purpose to drive growth. We also learned that by creating a pure-play industry leader, you become easier to understand for investors.”
Wall Street In Favor of XPO Stock Spinoff
The spinoffs represent a shift from the company’s previous growth strategy of mergers and acquisitions. Since 2011, XPO “took in 18 companies.”
However, Wall Street seems to be in favor of the spinoff. Deutsche Bank analyst Amit Mehrotra believes that the spinoffs will create at least $13 per share of incremental equity value. The analyst adds that under “reasonable valuation assumptions,” the spinoffs could create equity value of $30 per share.
Meanwhile, Truist Securities raised its price target to $107, while Cowen raised its price target to $117.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
