ADS Completes Spin-Off of Loyalty Ventures; Rate ADS at BUY with a $84 FVE; Rate LYLT at NEUTRAL with a $32 FVE

• On November 5, 2021, after the market close, Alliance Data Systems Inc. (NYSE: ADS) completed the spin-off of the company’s former LoyaltyOne segment, which controlled ADS’s AIR MILES Reward Program and Netherlands-based BrandLoyalty businesses, into a standalone entity operating under the corporate moniker Loyalty Ventures Inc. Loyalty will trade on the NASDAQ under the ticker “LYLT”.
• ADS shareholders of record as of October 27, 2021, received one share of LYLT for every 2.5 shares of Alliance Data owned. ADS retained a 19% ownership stake in LYLT, which the company expects to monetize over time in an effort to reduced outstanding debt.
• In when-issued trading, shares of LYLT closed at $46.50 per share on Friday, with the company trading a total of approximately 31,000 shares over four trading days.. ADS when issued pricing of $73 per share was based on only 533 shares traded on Friday.
• We adjust our post-spin earnings estimates to reflect 3Q 2021 results, which included LoyaltyOne revenue decline of 8.4% and operating margin of 26.2% (an increase from 9.8% a year prior and 16.2% in 2Q 2021), while Card Services revenue increased 7.4% and operated with segment margin of 40.6% as compared to 34.9% in 3Q 2020 and 55.3% in 2Q 2021.
• Of particular importance, management 3Q commentary suggests that growth in receivables is returning at a slower than anticipated rate at Card Services, likely due to continued consumer balance sheet health, while expansion of the buy now pay later platform appears to be negatively impacted by supply chain disruptions giving potential partners pause on near term rollouts.
• We maintain our Loyalty Ventures earnings estimates and fair value estimate at $32 per share. We rate shares of LYLT at NEUTRAL and note that given the relatively light volume in shares and current business trends, initial shareholder rotation out of distributed shares could result in selling pressure in initial trading.
• We note that LYLT’s peer comparison is challenged by its unique business model in the public markets, with Points International Ltd. (NASDAQ: PCOM) and Nielsen Holdings PLC (NYSE: NLSN) trading at 8.3x and 8.6x their respective 2022 consensus EBITDA estimate. At LYLT’s closing price in when-issued trading, shares trade at 10.5x our 2022 EBITDA estimate.
• We lower our post-spin ADS 2022 revenue growth to flat (previously 3% growth) and moderate our margin expectations to 27% (from 30%). We now value shares of post-spin ADS at $84 per share, which includes approximately $3 per share in value attributable to the 19% ownership stake in LYLT.  Given approximately 15% upside potential to our fair value estimate and longer-term business opportunities from growing receivables and its still early entry into buy now pay later market, we are attracted to post-spin ADS’s growth prospects and rate shares at BUY.
• ADS’s when-issued pricing implies a 7.3x multiple on our 2022 EBITDA estimate, which is roughly inline with peers Synchrony Financial (NYSE: SYF) and Discover Financial Services (NYSE: DFS). Our fair value estimate incorporates an 8.0x EV/EBITDA multiple to give the company credit for its entrance into the buy now pay later market.
• For more details, please refer to The Spin Off Report dated October 22, 2021.

Please see the attached Hidden Opportunities Update on The Liberty Braves Group (NASDAQ: BATRK). 

Not a bad week! Braves win the World Series and Sirius XM will now qualify as an “active trade or business” or ATB for Liberty (with Formula 1 set to follow in January 2022); fair value remains $42 per share

• Today, in a 13D, Liberty Media disclosed that it had, via an exchange agreement, passed the 80% ownership threshold at Sirius XM (NASDAQ: SIRI), which precipitates the consolidation of cash flows for tax purposes and qualifies the business as an “active trade or business’ (commonly referred to as an ATB) within the Liberty Media portfolio.
• We continue to expect that Formula 1 (NASDAQ: FWONA) will also qualify as an ATB following the 5-year anniversary of its purchase by Liberty in late-January 2022.
• To be sure, Mr. Maffei, Liberty’s CEO, acknowledges that the possession of multiple ATBs “creates optionality”; that said, he caveats his comments with a familiar refrain, which is that the company has no “current plan or intent” to engage in any particular transaction (or else it would be disclosed). 
• On the BATRK front specifically, in addition to the Braves winning the MLB World Series this week the Liberty Braves Group posted a 113% increase in 3Q 2021 sales to $234 million, reflecting a 118% increase in Baseball revenue to $222 million and a 50% increase in Development (i.e., real estate) revenue to $12 million, with adjusted OIBDA of $55 million (compared with $5 million in the prior year period).
• Notably, 3Q 2021 results also compare favorably with the same period in 2019 (i.e., pre-COVID) when BATRK generated sales of $212 million, comprised of $203 million in Baseball revenue and $9 million of Development revenue, with adj. OIBDA of $45 million.
• Our fair value estimate remains $42 per share for BATRK, reflecting a $40 per share valuation for the Braves, based on a ~5.5x multiple on 2022E sales, a $9 per share valuation for the company’s real estate/development assets, based on a 6% capitalization rate on stabilized net operating income, and net debt of ~$8 per share.

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Ziff Davis Reports 3Q 2021 Results, Which Include CCSI; Strength at Digital Media Keeps us Positive on ZD, While Valuation at CCSI Remains Elevated, in Our View

• On November 3, 2021, after the market close, Ziff Davis Inc. (NASDAQ: ZD) reported 3Q 2021 results, which included year-over-year revenue increase of 27.7% to $434.7 million, and adjusted EBITDA of $170.8 million, representing a 39.2% margin versus EBITDA margin of 43.3% in the prior year period.
• Notably, ZD’s 3Q results include the operations of Consensus Cloud Services Inc. (NASDAQ: CCSI), the company’s former cloud fax business, which was spun off from J2 Global on October 7, 2021. After the spin-off J2 Global rebranded as Ziff Davis.
• In terms of business performance, digital publishing (post-spin ZD) quarterly revenue increased 40.4% to $262.2 million as compared to 3Q 2020, with adjusted EBITDA of $103.1 million, representing a 39.3% margin and 90 basis points of expansion versus the prior year period.
• Cloud Services revenue increased 12.3% to $172.5 million, while EBITDA declined 1.7% to $79.5 million.
• Excluding CCSI’s operations, ZD’s pro forma revenue increased by 35% (12% organic) and EBITDA grew 23% to $117 million, yet margins contracted 330 basis points versus the prior year period.
• By our estimates, CCSI revenue increased by 4.4% to $88 million and generated $53.8 million in 3Q 2021.
• In terms of rationale, the separation will allow Consensus to adopt a differentiated growth strategy of expanding its healthcare business, while the transaction will reduce leverage at Ziff Davis. Pro forma net debt for ZD is $491 million, which excludes the CCSI ownership position. Consensus is expected to have had cash balance of $30 million at the time of separation. With dedicated management and industry expertise, Consensus will attempt to capture market share in the healthcare industry, while for ZD it can be expected that the enhanced financial flexibility will allow it to continue its growth-via-acquisition strategy, which has proven successful historically.
• Following the separation, ZD will be focused on its vertically integrated internet platforms (tech and gaming, health, shopping, and cybersecurity) and will be able to achieve greater top-line growth, with lower margins than Consensus. ZD is expected to generate ~$1.4 billion in revenue and approximately 35% EBITDA margins in 2021. The revenue growth guidance implies ~20% year-over-year growth, fueled by both organic growth and the benefits of past acquisitions. For reference, on a pro forma basis, ZD ex Consensus has exhibited a revenue CAGR of approximately 29% since 2013. The parent company has invested $2.4 billion in more than 70 acquisitions since 2013, and it can be expected to continue an acquisition strategy.
• Post-spin, we find the investment case for Ziff Davis more compelling than that for Consensus, as the programmatic acquisition strategy ZD employs has shown successful returns over the years, a trend we expect to continue to drive mid-teens-plus revenue growth over time, at stable margins. For Consensus, on the other hand, growth will be primarily predicated on its Consensus Unite platform’s ability to capture market share in the healthcare industry, which if successful could change the perception of the company as a legacy online fax provider into more of a healthcare SaaS platform. If successful in making that shift, Consensus could prove over time to be a highly successful spin-off; however, in the near term we think shares should trade at a relatively low multiple (versus the current trading levels) until a clearer path to market share gains as a healthcare SaaS platform emerges.
• We adjust our ZD fair value estimate based on revised pro forma net debt and the current share value of its CCSI ownership. ZD is now fairly valued $172 per share, which includes about $5 per share in value from the CCSI ownership position, and rate shares at BUY.
• We fairly value shares of Consensus at $38 per share and rate shares at SELL given downside potential to the current share price as of. Given our opinion that the company should be viewed more as a legacy electronic fax service provider and less a healthcare SaaS company, which in our view is fair given the percentage revenue contribution of the Consensus Unite platform (for which profitability is not clearly disclosed) likely lag that of the legacy business for a least several years. In our view a multiple of a legacy software/computer companies that are in transition to a cloud services model appears appropriate as a valuation comparable set to value CCSI. We acknowledge that this may prove conservative in the long-term (2+ years) as the company transitions, however we view it as appropriate in terms of the current and near-term business and in context of the spin-off. Last-nights closing price represents a 9.5x multiple on our 2022 EBITDA estimate which represents a multiple that would give more credit for the company’s attempt to be a healthcare SaaS player than we view as appropriate.
• For more details, please refer to The Spin Off Report dated September 29, 2021, and UPDATE dated October 8, 2021.

IBM Completes Spin-Off of Kyndryl; Initial KD Trading Appears Too Cheap Despite Business Concerns; Rate KD at BUY with a $46 FVE; Rate IBM at NEUTRAL with a $128 FVE

• On November 3, 2021, after the market close, International Business Machines Corp. (NYSE: IBM) completed the spin-off of its managed infrastructure business into a standalone publicly traded entity. The spin company adopted the corporate moniker Kyndryl Holdings Inc., and now trades on the NYSE under the ticker “KD”.
• IBM shareholders of record received one share of KD for every five shares of IBM owned as of the record date. IBM retained a 19.9% ownership position in KD, which it will divest over time. KD will have ~224 million shares outstanding, with a float of ~179 million.
• In the when-issued market, KD traded approximately 3.45 million shares over nine trading days, almost 3 million of which traded near the 4pm bell last night and closed at $28.50 per share.
• At last night’s closing price, shares trade at just 3.0x our 2022 EBITDA estimate and implies a near 11% FCF yield assuming the company generates $700 million in free cash flow. For reference, managements 2021 pro-forma guidance calls for EBITDA of $2.8 – $2.9 billion. Our 2022 EBITDA estimate is $2.57 billion, which we think incorporates appropriate downside risk to the managed infrastructure business. On a pro-forma basis the company generated free cash flow of $794 million in 2020.
• Given our view that the trading multiple in when-issued pricing appears heavily discounted, we recommend shares of KD.
• Our applied multiple is a half turn premium to DXC Technology Co.’s (NYSE: DXC) current multiple, which is at the low end of the peer group, and a slight discount to DXC’s historic average forward EV/EBITDA multiple, which we view as appropriate given current business trends and the comparable group.
• We acknowledge that KD’s business has structural issues, however the discount to our fair value appears wide enough to recommend that short-term investors could capture near-term upside following the distribution.
• The largest issue going forward for KD is the company’s ability to drive sustainable revenue growth and margin expansion to operate profitably on a both a net earnings and cash flow basis. Revenue declines, from both discrete portfolio actions (i.e., prioritizing higher-margin businesses) and COVID-related effects, appear to be easing, as indicated by revenue trends. However, margin expansion has yet to materialize, and sustained revenue growth may be difficult to achieve.
• While we think the current trading multiple is below an appropriate level, we do note that the light trading volume leaves a significant portion of KD’s float with shareholders that may have to or choose to rotate out of the position.
• To that end, Kyndryl will not be included in the S&P 500, and instead will join the S&P MidCap 400. IBM will remain in the S&P 500. The index change will result in forced selling from indexed funds, which could exacerbate the discounted multiple over the next several days. The index changes are effective November 5, 2021, before the market open.
• While our recommendation of KD shares is based on the initial trading multiples, longer-term investors may wish to exercise more caution given revenue trends in what was IBM’s legacy, and likely underinvested, business that lacks a focus on cloud and AI.
• As for post-spin IBM, we rate shares at NEUTRAL as the when-issued price for post-spin shares price approximates our $128 fair value estimate.
• Our IBM fair value is derived by applying an 11x multiple to our 2022 EBITDA estimate and incorporates approximately $2 per share in value for the retained ownership in KD.
• For more details, please refer to The Spin Off Report dated October 18, 2021, and UPDATE dated October 28, 2021.

Please see the attached Hidden Opportunities Update on Vonage Holdings Corp. (NASDAQ: VG).

VG tops consensus for sales and adj. EBITDA in 3Q 2021 and raises full-year guidance at both the VCP and Consumer segments; maintain $20 per share fair value

• Today, VG reported 3Q 2021 sales growth of ~13% to $358.3 million (versus consensus of $347.4 million), which reflected a 23% increase at VCP to ~$288 million offset by a 15% decline at Consumer to ~$70 million, with adj. EBITDA growth of 22% to $50.9 million (compared with consensus of $46.8 million).  Adjusted EPS were $0.04 (versus $0.07 in the prior period and in-line with consensus.)
• For additional context on VCP sales growth of 23%, we would note that it reflected a 43% advance at API and an 8% rise at UC/CC.
• The company ended 3Q 2021 with net debt of $447 million (compared with $517 million at the end of 2020), including cash of $48 million, and a net leverage ratio below 2.3x (versus 3.0x at the end of 2020).
• In terms of guidance, VG increased its full-year 2021E financial outlook across the board (see Exhibit #1 on page 2); on a consolidated basis, the company increased its full-year sales and adjusted EBITDA guidance to $1.4-$1.409 billion and $194-$198 million (previously $1.383-$1.394 billion and $189-$194 million), respectively.  The capital spending budget was lowered to $60 million (from $65 million).
• By segment, at VCP, the company projects full-year sales of $1.113-$1.21 billion (previously $1.095-$1.106 billion), including Service sales growth of 23%-24% (up from 20%-22%), along with adj. segment EBITDA of $8-$12 million (previously $4.0-$9.0 million).  At Consumer, VG expects 2021E sales of $293-$301 million (up from ~$288 million) with adj. EBITDA of $186 million (previously $185 million).
• For our part, we maintain our sum of the parts fair value estimate of $20 per share; our valuation framework values VG’s Consumer business at 1.0x 2023E EBITDA and applies a blended multiple of 3.4x to VCP 2023E sales, which reflects multiples of 4.0x and 2.5x on the API and UC/CC business, respectively, while accounting for projected net debt of $475.5 million (see Exhibit #2 on page 2). 

XPO posts 3Q 2021 results ahead of consensus, despite LTL performance that lagged peers, and marginally increases the mid-point of 2021E adjusted EBITDA and EPS guidance; still targeting 2022E adj. EBITDA of “at least $1 billion” at LTL; maintain fair value of $108 per share

• XPO posted 3Q 2021 sales growth of 22% to $3.270 billion (vs. consensus of $3.093 billion) with adjusted EBITDA growth of 14.5% to $307 million (vs. consensus of $297.6 million).  Adjusted EPS were $0.94 (vs. consensus of $0.92 and $0.42 in the prior year period).
• By segment, XPO’s LTL segment posted an almost 15% rise in sales to $1.07 billion while adj. EBITDA fell 6.7% to $222 million. Ex-gains on real estate, the LTL operating ratio deteriorated 190 basis points to 84.4%, primarily due to increased compensation and purchased transportation costs. (For context, XPO’s LTL results lag competitors, such as SAIA and ODFL, which posted average sales growth of ~30% along with 500 and 190 bps of OR improvement to 83.5% and 72.6%, respectively, in 3Q 2021).  At Truck Brokerage, sales increased ~27% to $2.26 billion while adj. EBITDA increased ~45.5% to $131 million. 
• XPO generated $185 million of FCF in 3Q 2021 and ended the quarter with net debt of $3.3 billion, incl. $254 million of cash, and a leverage ratio of 2.8x.  XPO targets a leverage ratio of 1.0x-2.0x in 1H 2023.
• In terms of guidance, the company tightened its adjusted EBITDA guidance to $1.228-$1.233 billion (previously $1.195-$1.235 billion), or $1.231 billion at the midpoint (which is ~1.5% above the prior mid-point of $1.215 billion but below current consensus of $1.246 billion) as well as its adj. EPS guidance to $4.15-$4.25 (compared with the previous guide of $4.00-$4.30), or $4.20 at the midpoint (which is ~1% above the prior midpoint of $4.15 and modestly ahead of the current consensus estimate of $4.17).  The company increased its free cash flow guidance to $425-$475 million (from $400-$450 million) while maintaining its capital spending budget at $250-$275 million.
• For 2022E, while XPO has not provided formal guidance the company maintained its target for the LTL business to generate adjusted EBITDA “of at least $1 billion”.  Longer-term, management anecdotally indicated that it sees the opportunity for “hundreds” of basis points of incremental profitability improvement at LTL.
• Fair value remains $108 per share based on a blended multiple of 11.5x multiple, reflecting 12x for LTL and 10.5x for truck brokerage, on 2022E adj. EBITDA of $1.377 billion (previously $1.39 billion). 

Please see the attached Hidden Opportunities Update on OneSpan Inc. (NASDAQ: OSPN). 

OSPN tops consensus in 3Q 2021 and increases the mid-point of 2021 sales and adj. EBITDA guidance; cost cuts likely to be announced before year-end with wider strategic actions in 1H 2022

• Last night, after the market close, OSPN reported 3Q 2021 results, which demonstrated a 2% increase in sales to $52.3 million (vs. consensus of $50.8 million), aided by a 38% increase in recurring revenue to $30.5 million, with adjusted EBITDA and EPS of $1.7 million and $0.03 (vs. the consensus loss expectations of $5.1 million and 0.13), respectively.
• The company ended 3Q 2021 with no debt and $98 million in net cash (or roughly $2.45 per share).  During 3Q 2021, OSPN repurchased 231,000 shares for ~$4.6 million (on top of the 111,000 shares repurchased for ~$2.9 million in 2Q 2021).
• OSPN increased full-year 2021 sales and adj. EBITDA guidance to $209-$213 million (vs. its previous guide of $205-$215 million and its initial target of $215-$225 million) and a loss of $6.0-$8.0 (vs. its previous guide of $12.0-$15.0 million and its initial expectation of “approximately breakeven).  Recurring revenue is now projected to grow 18%-20% (previously 17%-20% and initially 22%-26%) to $118-$120 million (vs. the previous guide of $115-$120 million and its initial target of $120-$125 million; see Exhibit #1 on page 2).
• Internally, OSPN’s Board continues its search for a permanent chief executive as well as its formulation of a “strategic action plan”.  On the latter front, management indicated that initial cost reduction measures are likely to be announced before year-end but that its more formal/comprehensive plan would likely be discussed at an Investor Day in 2Q 2022.
• Our fair value estimate remains $32 per share, which values OSPN’s Hardware business at 2.5x 2022E EBITDA, applies sales multiples of 1.0x and 8.5x to the company’s legacy/non-recurring licensing and core/recurring software & services businesses, respectively, and accounts for ~$100 million of projected net cash (see Exhibit #2 on page 2).

XPO posts 3Q 2021 results ahead of consensus, despite LTL performance that lagged peers, and marginally increases the mid-point of 2021E adjusted EBITDA and EPS guidance; still targeting 2022E adj. EBITDA of “at least $1 billion” at LTL; maintain Fair Value of $108 per share  

• XPO posted 3Q 2021 sales growth of 22.2% to $3.270 billion (compared with consensus of $3.093 billion) with adjusted EBITDA growth of 14.5% to $307 million (versus consensus of $297.6 million).  Adjusted EPS were $0.94 (versus consensus of $0.92 and $0.42 in the prior year period).
• By segment, XPO’s LTL segment posted an almost 15% rise in sales to $1.07 billion while adj. EBITDA fell 6.7% to $222 million. Excluding gains on real estate, the LTL operating ratio (OR) deteriorated 190 basis points to 84.4%, primarily due to increased compensation and purchased transportation costs. (For context, XPO’s LTL results lag competitors, such as Saia and Old Dominion, which posted average revenue growth of ~30% along with 500 bps and 190 bps of OR improvement to 83.5% and 72.6%, respectively, in 3Q 2021).  At Truck Brokerage, sales increased ~27% to $2.26 billion while adjusted EBITDA increased ~45.5% to $131 million.
• The company generated $185 million of free cash flow in 3Q 2021 and ended the quarter with net debt of $3.3 billion, including $254 million of cash, and a leverage ratio of 2.8x.  The company is targeting a leverage ratio of 1.0x-2.0x in 1H 2023.
• In terms of guidance, the company tightened its adjusted EBITDA guidance to $1.228-$1.233 billion (previously $1.195-$1.235 billion), or $1.231 billion at the midpoint (which is ~1.5% above the prior mid-point of $1.215 billion but below current consensus of $1.246 billion) as well as its adj. EPS guidance to $4.15-$4.25 (compared with the previous guide of $4.00-$4.30), or $4.20 at the midpoint (which is ~1% above the prior midpoint of $4.15 and modestly ahead of the current consensus estimate of $4.17).  The company increased its free cash flow guidance to $425-$475 million (from $400-$450 million) while maintaining its capital spending budget at $250-$275 million.
• For 2022E, while XPO has not provided formal guidance the company maintained its target for the LTL business to generate adjusted EBITDA “of at least $1 billion”.  Longer-term, management anecdotally indicated that it sees the opportunity for “hundreds” of basis points of incremental profitability improvement at LTL.
• We maintain our fair value estimate of $108 per share based on a blended multiple of 11.5x multiple, reflecting 12x for the LTL operations and 10.5x for truck brokerage, on 2022E adj. EBITDA of $1.377 billion (previously $1.39 billion).  Given the implied upside we maintain our BUY on XPO shares.
• For context, peers to XPO’s LTL operations, such as Saia Inc. (NASDAQ: SAIA) and Old Dominion (NASDAQ: ODFL), trade at ~16.0x and 21.5x 2022E EV/EBITDA, respectively, while peers to its truck brokerage businesses, such as C.H. Robinson (NASDAQ: CHRW), and Landstar System (NASDAQ: LSTR) trade, on average, at ~13x.  (As well, on the M&A front, we would note that domestic truck broker, Echo Global Logistics [NASDAQ: ECHO], recently agreed to be purchased by private-equity firm, The Jordan Company, for ~12x 2022E EV/EBITDA.)
• For more details, please refer to The Spin Off Report dated April 7, 2021.

Drop Coverage of Bausch Health Companies Inc. Effective Immediately

• On November 2, 2021, before the market open, Bausch Health Companies Inc. (NYSE: BHC) released 3Q 2021 results. In conjunction with the release, the company detailed plans for the previously announced separation of both Solta and Bausch + Lomb (B+L) businesses.
• The company has previously disclosed that filings had been made with the SEC on a confidential basis in relation to the separations.
• BHC now plans to complete the partial IPO of Solta in December 2020 or January 2021, and the partial IPO of B+L approximately 30 days after the Solta IPO.
• The company expects to keep an unspecified ownership percentage of both Solta and B+L. The Solta ownership stake is expected to be retained by BHC as a strategic asset, which will be used to delever the company’s balance sheet. The B+L ownership position is expected to be distributed to BHC shareholders; however, the timing of that distribution is uncertain at this time and is subject to several conditions including lockup periods, regulatory filings, and tax opinions on the “tax efficient” nature of a potential distribution.
• Given the planned IPO of B+L versus a 100% spin-off and unknown timing/certainty of a distribution to BHC shareholders, we are dropping coverage of BHC effective immediately. We would consider re-initiating coverage of BHC post-IPO if and when more clarity arises surrounding the potential distribution to shareholders.
• Our prior estimates and fair values for BHC should no longer be relied on.

Please see the attached Hidden Opportunities Update on XPO Logistics, Inc. (NYSE: XPO)/GXO Logistics, Inc. (NYSE: GXO).

GXO tops consensus in first quarter as a standalone public company; modestly increases 2021E sales and adj. EBITDA guidance and maintain 2022E outlook; fair value is $89 per share

• Today, in its first reported quarter as a standalone public company, GXO, which was spun-off from XPO Logistics (NYSE: XPO) on August 2, 2021, posted top-line growth of ~25% to $1.974 billion (versus consensus of $1.9025 billion) with a ~15% increase in adjusted EBITDA to $163 million (compared with consensus of $158 million). Adjusted EPS were $0.56 (compared with consensus of $0.51 and $0.23 in the prior year period).
• The company generated $50 million of free cash flow in 3Q 2021 and ended the quarter with net debt of $757 million, including $275 million of cash, and a net leverage ratio of 1.3x.
• In terms of guidance, the company modestly increased its 2021E outlook, which now calls for sales of $7.6-$7.8 billion (up from $7.5-$7.7 billion) with adjusted EBITDA of $607-$637 million (previously $605-$635 million). As well, the company lowered its tax rate and capital spending expectations to 25%-27% (from 26%-28%) and $225-$250 million (previously $240-$250 million), respectively.
• For 2022E, GXO maintained its previously articulated guidance calling for organic top-line growth of 8%-12% with adjusted EBITDA of $705-$740 million (and adjusted EBITDA of ~$1.5 billion).
• Longer-term, management has anecdotally suggested that GXO can sustain “double-digit” sales and adj. EBITDA growth as, at least thematically, the company sees “secular tailwinds” from E-Commerce, Automation and Outsourcing underpinning the opportunity in a large (i.e., TAM of ~$430 billion) and fragmented (i.e., top 5 players control less than ~25%) market.
• Applying a 15x multiple to 2022E EBITDA of $735 million, which is roughly in-line with IFRS adjusted peers, such as Clipper Logistics (CLG LN), ID Logistics (IDL FP) and Kuehne + Nagel (KNIN SW), as well as management’s “mid-teens” commentary, implies a fair value estimate of $89 per share for GXO (see Exhibit #1 on page 2). Fair value for XPO Logistics remains $108 per share.