Ant Mehrotra Chris Snyder Go to article page Seldon Clarke Kenya Watson XPO Logistics {Ticker. XPO.N. Closing Price: 101.68 USD, Target Price: 133.00 USD, Recommendation: Buy) We met lonl with XPO's senior mgmt team yesterday at the company's HQ in Connecticut In attendance was CEO Brad Jacobs, Chief Strategy Officer Scott Metal, and Director of IR Tavio Headley. The discussion centered on the long-term and strategic direction of the company- focused on three areas: (1) XPO's ability to react to a cyclical downturn; (2) M&A, and (3) sustainability of recent strong growth revenue, earnings and cash flow trends. We came away more comfortable in all three areas, with our specific takeaways as follows: • Recession stress test: We believe XPO's ability to preserve revenue, eamings and cash flow in a recessionary environment is underappreciated- a critical point in an environment of peak cycle fears. Mgrr4. believes it can grow free cash flow in a recession- reflective of half of total capex earmarked for growth, which can be reduced in a falling demand scenario. We also see potential for Contract Logistics (40% of total sales) to grow both top line and earnings in a downturn- as customers accelerate outsourcing of logistics during recessions to achieve capital and expense savings. Also the majority of contracts in this business have minimum volume commitments, making revenue resilient while allowing costs (particularly labor) to be scaled back in a downturn- giving XPO the ability to capture the savings and allowing for earnings and cash flow growth during periods of macro weakness (mgmt. noted that ebitda at New Breed- a high-value contract logistics company XPO acquired in 2014, increased by more than 30% each year in 2008 and 2009 due to above-mentioned factors). There is clearly downside potential in a recession within the company's more cyclical businesses (i.e. brokerage and LTL, which together account for half of total revenues), though we es