Question

Locate XPO Logistics' (ticker symbol XPO) August 2, 2018 8-K filing. Discuss in a reasonably detailed manner why XPO’s management would be willing to offer the described compensation to Ms. Glickman. Be sure to address what the closing five-year share price suggests about the expected annual growth rate of the company. The 8-K can be found on the company's website (I have provided the link below). Please try to describe in one page.

http://investors.xpo.com/phoenix.zhtml?c=204615&p=irol-SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTEyMzg0NDU0JkRTRVE9MCZTRVE9MCZTUURFU0M9U0VDVElPTl9FTlRJUkUmc3Vic2lkPTU3

Thank you in advance....

Answer 1

XPO Logistic has appointed Ms. GLickman as the Chief Finance Officer of the company considering her more than 25 years of senior finance experience. I believe that XPO Logistics can leverage on that experience to maintain robust growth witnessed in the last few years.

The stock is currently trading at $105.28 and one of the criteria for the compensation is the average stock price of $200 over a period of 20 consecutive days.

This would imply an average compounded annual growth rate of 13.7% in the stock price. Now if we see the company's adjusted EBITDA for 2017 it is $1.37 billion with an outlook of $1.6 billion for 2018, the expected growth in adjusted EBITDA would be 16.8%.

It is worth noting that the company has grown EPS at a CAGR of 24% in the last five years. Further, analyst estimates suggest that earnings is likely to grow at a CAGR 39.9% in the coming 5 years.

Strong EPS growth will justify the compensation for the new CFO.

In addition, based on the current PE of 31 , the PEG is less than 1, which indicates undervaluation of the stock. As the company grows at a robust pace in the coming years, I expect the stock to steadily trend higher and considering EPS growth of nearly 40%, annual stock upside of 13% to 15% is very likely. This would help the stock achieve the price target of $200 in the next 5-years.

These factors make the compensation structure attractive and likely for the new CFO. Therefore, with strong growth, the management is unlikely to face any constraints on the compensation plan for the new CFO.