Is Home Depot Considering Buying XPO Logistics?

by Trefis Team
+16.99%
Upside
185
Market
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Trefis
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Home Depot
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The home improvement industry in the US is massive, with Home Depot (NYSE:HD), one of the biggest players in this space, garnering close to $100 billion in sales. Furthermore, the relatively decent operating margin for the company, 14.9% in the first nine months of 2017, may make this sector attractive to e-commerce companies, such as Amazon, that make-do with single-digit margins. In order to keep such companies at bay, Home Depot has undertaken a number of steps, and invested a considerable amount of money, to seamlessly integrate and cohere its different channels. Its investment has been mostly focused on upgrading its e-commerce offerings in terms of an improved distribution system, better supply chain management, and fully integrating its web and in-store inventory. Now rumors have been floating around that Home Depot is considering the purchase of XPO Logistics, as it looks to move into last-mile delivery. According to Recode, the home improvement giant “has held internal discussions in recent months about a potential acquisition bid” for the publicly traded company that provides transportation, delivery, and other logistics services for big retailers and brands.

We have a $187 price estimate for Home Depot, which is below the current market price.

What’s The Amazon Angle In The Potential Purchase?

One of the reasons cited for the potential acquisition has been to keep Amazon at bay, as Home Depot believes the e-commerce giant is also interested in buying XPO. The latter is most known for delivery of large and heavy items such as furniture, with the company calling itself “the largest provider of last-mile logistics for heavy goods in North America.” In May of 2017, it had been reported that XPO would be one of the main companies Amazon would be using as it made its foray into furniture and appliances. Amazon has been making a considerable effort to take control of its logistics in recent years, such as taking a stake in air cargo provider Atlas Air, buying truck trailers, and launching programs such as Amazon Key and Amazon Flex.

For Home Depot, on the other hand, this acquisition would help the company to better cater to its customers in the home delivery space. However, it would also push the company towards a new line of business. Further, given the fact that last-mile logistics revenue forms just 6% of XPO’s total revenue, the possibility of synergies would be minimal. However, if Amazon were to buy XPO, Home Depot may lose scale and consumer value. While it is not clear whether Home Depot would actually make an offer for XPO, it could definitely start a bidding war in case it does.

See complete analysis for Home Depot’s stock

Have more questions about Home Depot? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking and encourages readers to comment and ask questions in the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Home Depot

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