The transportation (IYT) sector is highly cyclical in nature. In the United States, the road transportation industry is fragmented and is spread over numerous small, mid-sized, and large companies.
XPO Logistics’ (XPO) ambitions shook up the US road transportation sector in 2015. As a result, inorganic growth placed XPO among the top transportation and logistics companies in the US.
In the final part of the series, we’ll examine the valuation of XPO Logistics and its peers using the forward price-to-earnings multiple and the forward EV-to-EBITDA[1. earnings before interest, tax, depreciation, and amortization] ratio.
Forward valuation multiples
The forward PE (price-to-earnings) ratio represents the current dollars payable for every dollar of next year’s earnings per share. The EV-to-forward-EBITDA multiple can suggest how a road carrier is valued for each dollar of EBITDA it’s expected to earn.
Although road carriers with a lower EV-to-forward-EBITDA multiple might suggest undervaluation, this is not always the case. Companies with higher risk may also have low valuation multiples.
XPO versus peers
In the above chart, you will notice that XPO has the highest forward PE multiple of 38.4x, whereas United Parcel Service (UPS) has the lowest multiple of 19.0x. XPO is followed by SAIA (SAIA) with a 29.3x forward PE multiple.
Next in line is another major LTL (less-than-truckload) carrier, Old Dominion Freight Line (ODFL) with a multiple of 28.2x. Expeditors International of Washington (EXPD) and ArcBest (ARCB) have forward PE multiples of 26.4x and 25.2x, respectively.
Analysts have estimated year-over-year earnings growth of 93.0% for XPO Logistics over the next four quarters. The company’s 3Q17 results have displayed its ability to integrate its businesses going forward.