Shares of RXO Inc. NYSE: RXO are up greater than 20% on the week, one thing buyers in all probability didn’t see popping out of the ‘boring’ transportation sector. This sector is infamous for having a low beta, English for low volatility. RXO inventory has a beta under 1.0, that means the corporate’s inventory value will transfer lower than the each day transfer within the broader S&P 500 index.

Due to this quiet conduct, buyers want to research why the inventory is shifting so aggressively shortly. The reply lies in an announcement made earlier within the week when RXO administration introduced a brand new potential acquisition deal. United Parcel Service Inc. NYSE: UPS can be letting go of its Coyote Logistics branch for a stipulated $1 billion valuation. RXO will probably be there to choose up the invoice.

Contemplating that shares of United Parcel Service have been flat to adverse upon the information launch, buyers can considerably assume that letting go of Coyote Logistics is definitely not the very best transfer for the corporate, however what’s one man’s trash shortly turns into one man’s treasure, or so do Wall Avenue forecasts recommend for the way forward for RXO inventory at this time.

RXO Dominates the Market with Promising Progress Prospects for Buyers

The transportation trade is due for a change, significantly the truckload brokerage and providers sector, which is precisely the place buyers can count on RXO to begin churning out some larger steps shifting ahead. The corporate’s dimension is the primary issue enabling this to be the case.

A $3 billion market capitalization for RXO stands properly under United Parcel Service’s $117 billion and peer KnightSwift Transportation Holdings Inc. NYSE: KNX and its $8 billion market capitalization. Some buyers might view a smaller dimension as a difficulty. Nonetheless, this might profit a altering economic system, which has remained fixed for the reason that COVID-19 pandemic.

Why? RXO can modify and transfer from one technique to a different faster than its larger friends, as a tanker ship takes longer to alter course than a speedboat. Wall Avenue analysts know this, so they’re now forecasting as much as 261.1% earnings per share (EPS) development for RXO inventory this 12 months.

Whereas daring, the market is welcoming these assumptions, because the inventory is now bid as much as a ahead P/E ratio of 41.9x, commanding a premium of 141% over KnightSwift’s 17.4x valuation and a premium of 200% over United Parcel Service’s 14.1x ahead P/E a number of.

In fact, value motion must be thought-about as one other proxy. RXO inventory trades at a brand new 52-week excessive, even discounting the latest information rally, leaving KnightSwift inventory behind on its 81% and United Parcel Service as the underside performer at solely 70% of its 52-week excessive.

What the New Deal Means for RXO Inventory: Key Takeaways for Buyers

The corporate was variety sufficient to make a detailed presentation for investors on its web site, however these usually contain a whole lot of advertising and marketing and ‘really feel good’ viewpoints. Transferring outdoors of these components and into the meat of the deal, right here’s what buyers can count on.

Scale and diversification are the 2 fundamental results this acquisition may have on RXO inventory. Contemplating it’s the fourth largest truckload dealer within the U.S., including Coyote Logistics will diversify the corporate’s transport into meals and beverage and make it—reportedly—the third largest within the nation.

Whereas RXO solely counts 4,000 clients at this time, Coyote Logistics would deliver roughly 15,000 clients and over 97,000 carriers on board. Greater than that, including Coyote’s $3.2 billion in income would almost double RXO’s present $3.9 billion.

And the very best half? The corporate is taking no debt and utilizing no money to make this transaction occur, so buyers don’t want to fret about RXO swallowing up a mountain of debt to make this deal occur, as is usually the case in different mergers and acquisitions examples.

Earlier than you take into account United Parcel Service, you will wish to hear this.

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