XPO Surges as Buyback, Analysts Push Back Against Short Seller

(Bloomberg) -- XPO Logistics Inc. jumped the most in nearly a year, recovering part of Thursday’s record plunge as the company responded to a short seller’s attack with a stock buyback and got a fusillade of assistance from Wall Street.

The shares had tumbled 26 percent Thursday after Spruce Point Capital Management warned of “unreliable and dubious financials” at the trucking and warehouse operator. The short seller also called out XPO’s heavy debt burden and said management had lost investors’ confidence.

Deutsche Bank, echoing the analysis of other firms, responded Friday that it had found “highly misleading statements and inaccuracies related to basic calculations” in Spruce Point’s report. XPO, meanwhile, authorized the repurchase of up to $1 billion in stock.

The shares surged 13 percent to $50.17 at 11:09 a.m. Friday in New York after climbing to as high as $50.40, marking the biggest intraday advance since Dec. 22, 2017. Through Thursday, XPO had tumbled 61 percent since reaching a record in September.

Friday’s rally signaled a possible bottom for cargo shares, which have dropped since midyear on fears that the hot freight market would slow with the U.S. economy. Negative sentiment was exacerbated earlier this week when XPO pared its 2019 profit outlook, and then was compounded by Spruce Point’s report.

Read more: Analysts Don’t See ‘Smoking Gun’ at XPO

XPO’s reduced guidance notwithstanding, its growth target of at least 12 percent on top of a strong freight environment “is not exactly suggestive of end of days,” Bruce Chan, an analyst at Stifel Nicolaus, said in a note. The cargo market “remains quite healthy.”

Spruce Point’s report double-counted some debt, excluded items from free cash flow that are typical of the industry, and in one equation incorrectly showed a decline in profit instead of a gain, said Deutsche Bank analyst Amit Mehrotra.

The selloff “could ultimately be seen as one of the great buying opportunities,” he said.

XPO’s buyback -- its first in the seven years that Chief Executive Officer Bradley Jacobs has run the Greenwich, Connecticut-based company -- will be funded by cash, a revolving credit facility and other sources.

“This signals management’s confidence in the shares,’’ said Allison Landry, an analyst at Credit Suisse.

The planned repurchase spurred some criticism, however.

“XPO has pitched itself as a growth company, and this does nothing to further the growth of XPO’s operational results,’’ wrote Stephens analyst Jack Atkins. The buyback is “a knee-jerk reaction.”

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