This Logistics Provider Is RAKING During The Ongoing Shipping Crisis

Good news travels fast. An announcement by RXO (NYSE: RXO) on Sunday caused a market celebration early this week. Shares of the asset-light transportation company surged by more than 21% to $24.64 following the news that they would acquire Coyote Logistics from UPS. Since then, it has risen a little further and is now trading at $25.13. This is a $1.025 billion deal that will create the third-largest freight brokerage in the U.S. RXO's management sees this as part of a broader industry consolidation trend. They stress the importance of strong customer relationships, advanced technology, and robust financial practices.

Why Logistics Is At A Crossroads

The shipping and logistics sector is at a unique time when companies must be innovative while adapting to supply chain disruptions, sustainability requirements, and rapidly changing economic conditions.

RXO’s business strategy focuses on agility, sustainability, and a customer-centered approach. Despite the weakening freight market, the company had a 15% increase in brokerage volume in the fourth quarter of 2023 and expanded its brokerage team by 45% in the last three years. Its RXO Connect™ platform connects shippers with more than 100,00 carriers, and its RXO Drive mobile app is one of the carriers’ top choices, with more than one million downloads in the past year.

Mergers and Acquisitions

This acquisition involves $550 million in new equity issuance to major shareholders and $1.1 billion in bridge loans. Analysts view the purchase price as reasonable, at approximately nine times Coyote's projected 2025 EBITDA. RXO expects to realize $25 million within a year of closing, which is expected by year-end. The deal is projected to boost adjusted earnings per share and cash flow immediately.

The acquisition will significantly increase RXO's number of high-value customers and expand its market reach. UPS has committed to continue using RXO's services through 2030 as part of the agreement. While analysts maintain a cautious Hold rating on RXO stock due to challenges like employee retention, they acknowledge the potential benefits of the merger, including cost optimization, improved purchasing power, and enhanced market reputation.

Neither Julie Stoller nor Stocks.News have positions in this company.