Since October 4 when the market began its uptrend XPO Logistics (XPO) has posted a gain of more than 70%, which is nearly the best stock performance during this time period. The gains have been spread out on a daily basis as the stock attempts to regain some of its three month loss which remains 25%. I believe that XPO's gains are just beginning and that this stock will continue to post large gains as the company is transformed into a multibillion-dollar corporation.
Before the downtrend in the market the stock was trading at all-time highs because of improved fundamentals, a $150 million equity investment, and a new CEO with a proven record of success. Ever since the announcement of the investment and Jacobs' arrival as CEO there has been a new found level of excitement surrounding this company, and for good reason. Jacobs has built four billion dollar companies and I believe that with XPO he is starting with a better foundation than any of his previous companies. To better explain his previous four companies I have briefly described his tenure and history below.
Amerex Oil Associates was Jacobs' first company in which he cofounded in 1979. Jacobs sold the company just four years after it was founded but not before he built it into one of the largest oil brokerage firms in the world with annual gross contract volume of $4.7 billion.
After Jacobs sold Amerex Oil he founded a worldwide oil trading company, Hamilton Resources in the U.K. in 1984. Over a span of five years he grew the company to $1 billion in annual revenue by executing large contracts with major oil companies.
Jacobs sold Amerex Oil in 1989 and began his first venture outside of oil with United Waste Systems. Jacobs would spend 8 years as the CEO of United Waste System before selling the company to USA Waste Systems. During the 8 years Jacobs turned an idea into the fifth largest solid waste management business in North America. He built this company through a series of acquisitions, which are believed to be near 200 in total. He would purchase and consolidate smaller garbage collectors with overlapping routes in rural areas. And after 200 acquisitions and 8 years the company produced billions in revenue and was sold for $2.5 billion.
In 1997 Jacobs co-founded his most successful company to date; United Rentals (URI). The company was built similar to United Waste Systems through a series of acquisitions. In just 13 months the company achieved industry leadership and acquired U.S. Rentals the second largest equipment rental company at that time, which made United Rentals the largest equipment rental company in the world. Jacobs was CEO for six years but remained chairman for an additional four years. By the time he sold the company Jacobs had completed more than 250 acquisitions and was recording $3.9 billion in annual revenue.
If you look at each of the four companies that Bradley Jacobs founded and acted as the CEO you will find similarities. Each company achieved more than $1 billion in revenue in a short period of time, less than five years. And each company was built from scratch by executing a large number of acquisitions. Yet Jacobs built these companies in three different industries which proves that his strategy can be successful within a variety of industries.
After reading what Bradley Jacobs has been able to accomplish in a short period of time investors of XPO should be very encouraged. With each of his previous ventures Jacobs founded the company and built it from the ground up, but with XPO Logistics he is growing an established company in a massive industry. XPO Logistics is on pace to post its best year of revenue with the potential to post its best years of earnings. The company has a strong balance sheet with only $2.9 million in debt compared with $55.6 million in assets. Jacobs has already made a $150 million equity investment which we can assume will be used in acquisitions since purchasing companies is how Jacobs builds his successful corporations.
Bradley Jacobs has already made changes after announcing his strategic plan to build his billion dollar company. Jacobs announced that only the previous CEO would remain an executive and that he would be used to aid in acquisitions. This means that Jacobs is in the process of changing everything regarding the company's management and plans to build the company with executives of his desire that will make good decisions that correlate to his strategic plan. As a result the company has recently hired Scott Malat who previously worked at Goldman Sachs with a concentration in the transportation sector. Malat will be responsible for advising on the company’s strategic plan and its capital structure along with analyzing potential acquisitions and other growth opportunities. I believe that Jacobs has given us every indication that his plan is to bring individuals into the company that are very knowledgeable of the transportation sector and the companies within the sector so that the best possible acquisitions can be made.
"We're going to start off buying some small and medium-size companies but over time the plan is certainly buy some larger companies as well," he told Reuters in an interview.
"I've been meeting with roughly 100 acquisition candidates over the last two months and they are of all sizes, I've looked at companies as little as $10 million to $20 million in revenue, and I've looked at companies approaching $1 billion in revenue."
"I want this to be a multibillion-dollar company within several years," Jacobs told Reuters. "The industry is big, and I'm planning on creating a very big company."
The quotes above were made by Bradley Jacobs during an interview with Reuters back in June yet no acquisitions have taken place. Jacobs has made his intentions very clear and has not kept any secrets regarding how he plans to build this large company. All the pieces are in place; he has a large sum of cash to make purchases and his executive team is dedicated to finding good companies for purchase. Therefore I am curious as to why no purchases have taken place. If you look at the time it took Jacobs to build his previous billion dollar companies and how many acquisitions were made during the short period of time you would think the company is far behind schedule. Especially since Jacobs has already met with roughly 100 acquisition candidates by June, when the Reuters interview was published. And I know it can take months to close deals and that there is an unbelievable amount of paper work involved. Yet if Jacobs were buying small companies then I would think a few acquisitions would have already taken place. This fact makes me think that maybe something much bigger is taking place and that the first few purchases wont be small companies. But rather decent sized companies with a large number of assets that are most likely larger than XPO. Below are a few companies that I won't be surprised if Bradley Jacobs were to purchase during the immediate future.
- Marten Transport (MRTN) is a temperature sensitive truckload carrier in the United States. The company transports a variety of products but the majority of its revenue is from temperature controlled goods such as food. The company has a market cap of $394.84 million and has posted a loss of 16% year-to-date. The company is posting higher earnings and revenue and it has a great balance sheet with $20 million in cash and no debt.
- Celadon Group (CGI) is a truckload carrier that transports product for several of the largest corporations in America. It has a market cap of $243 million and has lost 27% of its value year-to-date. The company has significantly improved its earnings and revenue along with maintaining a strong balance sheet.
- Universal Truckload Services (UACL) offers a variety of truckload transportation services for a wide range of general commodities throughout the United States and the Canadian provinces of Ontario and Quebec. The stock has lost 11% of its value year-to-date and now trades with a market cap of $221 million. The company has increased its revenue while maintaining its margins. It has a great balance sheet with no debt and solid assets.
- YRC Worldwide (YRCW) offers a range of global, national, and regional transportation services. The company posts revenue over $4 billion annually and has a market cap of $100 million. The stock has lost the majority of its value over the last year after it restructured its debt. The company will most likely face bankruptcy at some point in the future because of its high debt and its liabilities that must be paid which will be hard since the company can't post a quarterly profit. And because of YRCW's financial struggles I believe that if Jacobs were to acquire this company he would either break the company down or try to purchase a portion of its assets, rather than the entire company.
Each of the companies listed above would serve a different purpose for XPO Logistics. And while it's most likely that Jacobs will purchase small companies that are not publicly traded I believe that each of these companies would make great additions to the services that XPO already provides. There are so many publicly traded companies that are trading at a discounted price because of the sectors performance during the sell-off within the market. And I believe that Jacobs is fully aware that he can acquire a public company for a bargain price, which is why I believe he hired a Goldman Sachs former employee to aid in acquisition who is very familiar with the companies within the sector.
All indications are pointing up and if you are looking for a great opportunity with a successful CEO then XPO Logistics would make a great investment. An important point to remember is that Bradley Jacobs turned each of his previous four companies into a multibillion-dollar company in a short period of time, and he did it through acquisitions and building a company from scratch. Jacobs does not have to build XPO from scratch, it's already an established company in a large market. The U.S. freight brokerage market is estimated to be approximately $50 billion annually and the international freight forwarding market is estimated to be $150 billion annually. Therefore Jacobs is operating in a much larger market than equipment rentals or waste management.
XPO operates in one of the largest markets in the world that continues to grow throughout the globe. As a result I believe that XPO Logistics will be his most successful company to date and that large acquisitions should begin very soon. And with a market cap of under $100 million along with annual revenue under $200 million I believe the sky is the limit. And that this stock will begin rising very soon, much higher than its 60% gain over the last three weeks or its $17.50 52-week high as XPO becomes a dominant player within the transportation industry for many years to come.
Disclaimer: As with any investment, due diligence is required. The opinions in this article are not intended to be used to make a particular investment or follow a particular strategy.