XPO Logistics (XPO 48.98, +4.48, +10.07%) began to rebound from its recent
decline in pre-market trade after the company defended itself from a short
report from Spruce Point Capital yesterday. The company also announced a $1 bln
share repurchase plan.
Yesterday, the stock fell 26% to a 20-month low after Ben Axler's Spruce Point Capital issued a short report on the stock. Spruce Point issued a report totaling more than 60 pages, calling for 40-60% downside risk to the stock. The firm accused the “roll-up”, which has over $4 bln in debt after completing seventeen acquisitions since 2011, of shady accounting practices and weak cash flow. They noted that CEO Bradley Jacobs got mixed up in an accounting scandal during his tenure at United Rentals (URI) over ten years ago. Similar allegations were made about XPO roughly two years ago.
Afterward, the company responded: "Today's report from a short selling firm is intentionally misleading, with significant inaccuracies, and fails to reflect that XPO has delivered strong performance for its long-term shareholders. The facts demonstrate that the short seller's claims, most of which have been previously floated and refuted, are largely baseless and an attempt to string together unrelated pieces of incorrect information to paint an inaccurate impression of the company. Of particular note, our accounting practices are based on Generally Accepted Accounting Principles and are audited annually and reviewed quarterly by our independent auditors. XPO's long-term financial outlook remains positive. We will communicate directly with our investors and customers regarding this short seller's report."
The stock tumbled yesterday despite a defense from a sell-side analyst. Acquisitive “roll-up” companies have seen some high-profile blow ups; Valeant Pharma, now Bausch Health (BHC), comes to mind. Ben Axler's L/S hedge fund has a solid reputation as an “activist short seller”.
The stock was especially vulnerable after falling 10% on Wednesday following disappointing fiscal 2019 guidance from the company, calling for 12-15% EBITDA growth and just 4% free cash flow growth in fiscal 2019.
Meanwhile, transportation stocks, best represented by the iShares Transportation ETF (IYT), have been in free fall this month, hitting a 50-week low yesterday on concerns over slowing economic growth. Numerous XPO Logistics peers also hit a 52-week low yesterday.
With a ~$6 bln valuation, XPO trades at ~14x EPS and ~7x EV/EBITDA.
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