May 29, 2015
300% Gainer Looks to Have
Another Double-Digit Rally in Store
By Melvin Pasternak
Mirror, mirror on the wall, which freight company is the fastest growing of them all?
While you might guess it's FedEx (NYSE: FDX) or United Parcel Service (NYSE: UPS), since they are both household names, the answer is the relatively unknown XPO Logistics (NYSE: XPO).
When it comes to revenue growth, it's no contest. Last year, while FedEx grew sales at a 2.9% year-over-year pace and UPS' revenues were up 5%, XPO's sales soared 236%.
True, XPO's revenues totaled $2.4 billion in 2014, while FexEx had more than $45 billion and UPS more than $58 billion. But if you're looking for growth, XPO is the place to be.
Traders have taken notice, and the stock has more than doubled in the past year and is up more than 300% in less than three years.
While organic growth has been solid, a large reason for increased revenues is XPO's furious pace of acquisition. It bought three key companies in 2014: Pacer International, New Breed Logistics and Atlantic Central Logistics. In fact, XPO has been on a buying spree, acquiring 16 different firms between 2008 and 2014.
In late April, the company announced it will acquire France-based Norbert Dentressangle for $3.53 billion. This is a major deal for XPO as it will put it in the top 10 global logistics companies and help it grow its business in Europe with greater access to European-Asian trade lanes. Management also said the acquisition would more than triple EBITDA to $545 million and increase revenue to about $8.5 billion, helping the company hits its 2017 financial targets two years ahead of schedule.
Less than a week later, XPO was back on the acquisition path, announcing it would buy Bridge Terminal Transport Services. This port trucking provider serves 28 U.S. port terminals and should help XPO grow its intermodal services (containers that can fit on ships, trucks or rail).
Although the company does handle retail and e-commerce deliveries, XPO is not as well-known to consumers as FedEx or UPS since it mainly serves customers in the manufacturing, retail, industrial, technology, aerospace, commercial, life sciences and government sectors.
The company is the second largest North American freight brokerage, the third largest provider of intermodal services, and the largest provider of heavy goods "last mile" delivery. On average, XPO makes 39,000 deliveries a day, services 15,000 customers and operates out of 201 locations in North America, although that number will expand dramatically when the recent acquisitions close.
Over the past several years, revenues have grown exponentially, from $158 million in 2010 to $2.4 billion in 2014. However, the company has lost money for most of those years, and it reported a net loss of $2 per share in 2014. But increased sales finally appear to be translating into profitability. For 2015, analysts project losses will be cut to $0.25 per share, and XPO is expected to book a profit of $0.50 in 2016.
Despite the losses, the stock has been on a tear for most of the past three years.
Shares bottomed near $11.50 in October 2012. From there, they advanced to just above $19, a level of strong resistance, in February 2013, backed off and went sideways for several months.
Finally, in July 2013, XPO broke out of a more than year-long base formation, rallying above $25 on high volume. It then pulled back over several months, testing and holding the mid-$19 breakout level. After this successful technical test, shares rapidly advanced to over $30 by the end of 2013, pulled back, and ran almost to $33 by mid-February 2014.
XPO then lost nearly one-third of its value over the next four months, bottoming near $23 in May 2014 and breaking the uptrend line from its October 2012 bottom in the process.
From there, XPO advanced rapidly. By September, it penetrated $40, nearly doubling from its low four months earlier. After several months of consolidation, it hit a series of successive new all-time highs and cracked round-number resistance at $50 this month.
Currently, XPO is hovering near $50 as it consolidates its recent gains. As the support line at the top of the chart shows, sellers have not been able to drive shares significantly below $50 in the past five weeks.
The current uptrend line intersects the chart just under $45, so I will set my stop-loss at $44.79.
The 15 analysts following the stock have a median target of $56 and a high target of $61. I am going to split the difference and project XPO will reach a peak of $58.89 before running into significant resistance.
Recommended Trade Setup:
-- Buy XPO at the market price
-- Set stop-loss at $44.79
-- Set price target at $58.89 for a potential 16% gain by Q3
Note: If you are a fan of momentum investing, I urge you to check out my colleague, Tom Vician. Tom is a Chartered Market Technician (CMT), one of only about 1,400 traders in the world who has earned this designation.
Tom has a proprietary indicator that spots stocks on the verge of breakouts. In the past few months, he has closed trades for returns of 35.4%, 40%, 55.1%, 60.2% and 88.5%. He has agreed to share this indicator with a select few traders. If you'd like to be on the list, follow this link.
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