The firm said that the company's acquisition of trucking and logistics company Con-way (CNW) is a "tough acquisition to digest."
This action comes after XPO Logistics said last week that it would acquire Con-way for $3 billion.
Investors are concerned about the deal due to the nature of EBITDA acquired and the extent of leverage involved, according to the analyst note.
Shares closed Friday's trading session up 6.65% to $32.25.
Based in Greenwich, CT, XPO Logistics provides transportation and logistics services primarily in the U.S.
Separately, TheStreet Ratings team rates XPO LOGISTICS INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate XPO LOGISTICS INC (XPO) a HOLD. The primary factors that have impacted our rating are mixed – some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and notable return on equity. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, weak operating cash flow and a generally disappointing performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- XPO's very impressive revenue growth greatly exceeded the industry average of 0.5%. Since the same quarter one year prior, revenues leaped by 109.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Even though the current debt-to-equity ratio is 1.34, it is still below the industry average, suggesting that this level of debt is acceptable within the Air Freight & Logistics industry. Despite the fact that XPO's debt-to-equity ratio is mixed in its results, the company's quick ratio of 1.74 is high and demonstrates strong liquidity.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Air Freight & Logistics industry. The net income has significantly decreased by 440.6% when compared to the same quarter one year ago, falling from -$13.76 million to -$74.40 million.
- Net operating cash flow has significantly decreased to -$70.50 million or 294.64% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full analysis from the report here: XPO Ratings Report