Morgan Stanley Downgrades XPO Logistics, Cites Poor Forward Visibility

XPO Logistics Inc XPO provided FY19 guidance Feb. 14 that reflects the departure of a large customer and a softening macro environment in Europe.

This creates concerns around the forward visibility of the business, while M&A is off the table, according to Morgan Stanley.

The Analyst

Morgan Stanley’s Ravi Shanker downgraded XPO Logistics from Overweight to Equal-Weight and reduced the price target from $116 to $71.

The Thesis

XPO Logistics is facing a challenging macro environment, especially in Europe, which accounts for around 16 percent of revenue, Shanker said in the Tuesday downgrade note.

At the same time, the company needs to focus on execution, new business wins and curtailing customer losses over the next few quarters, the analyst said. 

Morgan Stanley lowered the EBITDA estimates for 2019 and 2020 from $1.81 billion to $1.68 billion and from $2.06 billion to $1.81 billion, respectively. Events over the past six months have “shaken our confidence in the near-term trajectory of estimates," Shanker said. 

M&A doesn’t seem to be an option anymore, in Morgan Stanley's view. Although management is making the right decision to repurchase shares given recent weakness, M&A was an important component of Morgan Stanley's earlier Overweight rating, Shanker said. 

Although valuation and buyback could set a floor for the stock in the $55-$60 range, any upside may take time, the analyst said. 

Price Action

XPO Logistics shares were up 4.82 percent to $54.60 at the time of publication Tuesday.

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Photo courtesy of XPO Logistics.