Citi visited XPO Logistics' HQ - here's why its research team now thinks the transportation giant's stock could more than double in the next 2 years.

• Citi's logistics equity team paid a visit to XPO Logistics' headquarters in Greenwich, Connecticut last week, and they liked what they saw.
• Based on cost efficiencies driven mainly by XPO's tech offerings, Citi wrote in a November 12 report to its investors that the group expects XPO's stock to hit $100 a share, up from around $84 in November.
• Citi added that shares could soar to $200 a piece in the next two years.
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XPO Logistics was in a slump.

In February, its largest customer, largely understood to be Amazon, reduced its business with XPO by two-thirds, slashing an estimated $600 million from XPO's 2019 revenues.

A recession also took hold of America's trucking industry this year, along with a slowdown in manufacturing. Freight volumes were down in October 2019 for the 11th consecutive month, according to the most-recent report from Cass Information Systems. Truckload rates have also sank for three consecutive months since August 2019; last month, they were down 2.5% year-over-year.

Given all of that, XPO's stock hit $46 a share in early March, hovering around $50 to $60 a share through July.

Now, things are looking up. Investors have pushed XPO's stock higher and higher, hitting a 12-month high of $86 a share this week.

Citi is optimistic about a 'potential' bull case

And the logistics equity research team at Citi thinks it might go even higher. After a November 11 visit to XPO's headquarters in Greenwich, Connecticut, the team headed by Christian Weatherbee wrote in a note to investors that they are increasing XPO's target to $100 a share.

The team added that it could jump to as high as $200 through 2022.

"While we think it's too early to really underwrite the Bull case for XPO, it's worth noting the potential," wrote Citi's logistics equity team in the November 12 note.

"Management believes (middle single-digit) revenue growth and margin expansion is the base case in a stable macro environment," they added. "In addition, XPO has a 2022 target to increase profit by $700 million to $1 billion. Taken together, we believe there is a path toward $3 billion in annual EBITDA, which has the potential to drive XPO shares toward $200 over the next two-plus years."

XPO, which is helmed by CEO and "serial deal-maker" Brad Jacobs, ranked No. 1 on Transport Topics' list of the country's largest logistics players. The company employs some 100,000 people in 32 countries and raked in more than $17 billion in revenue last year.

XPO's growth underpinned largely by tech innovations

Logistics is an industry that's infamously sluggish to innovation - many truck drivers still find loads to transport by calling, emailing, and even faxing, though a slew of buzzy new startups are seeking to overhaul that.

For that reason, XPO's tech-driven "10 initiative strategy" to boost profitability by $700 million to $1 billion by 2022 could be seen as especially impressive. Jacobs is a notable M&A kingpin, but Citi wrote that the CEO is looking to focus more on internal measures to increase profitability in the coming years.

Four key initiatives are essential to XPO's cost-efficiency strategy, Citi wrote:

1. XPO Smart, which is a suite of output tools that give managers a "technological microscope" to labor productivity. Some features include machine learning-enabled software to measure how staff adjustments would impact output.
2. XPO Edge, which optimizes XPO's less-than-truckload network. LTL comprises around 28% of XPO's bottom line.
3. Automation, which centers on "intelligent robots" and boosting automated picking and packing to increase warehouse productivity.
4. XPO Connect, which is a digital freight brokerage. Some 37,000 carriers use XPO Connect. According to an October UBS report, downloads of the brokerage app has seen significant momentum since its introduction in 2018.

XPO is garnering approving nods from Morgan Stanley and Deutsche Bank

While other research teams haven't sounded the alarm on a potential $200 share price, other big banks are confident about XPO's technology platform.

In September, XPO hosted its first Tech Summit in Boston, which was heavily attended by investors looking to learn more about Jacobs' growing transportation empire. Deutsche Bank's freight research team, headed by Amit Mehrotra, said it was the "best investor/analyst events we've attended in several years."

Morgan Stanley's freight transportation equity team also approved of the tech focus - particularly as Jacobs begins to focus on how it can boost internal operations over simply optimizing acquisitions. XPO has acquired 17 major organizations, according to Crunchbase, the largest of which was Ann Arbor, Michigan-based LTL carrier Con-way.

"The role of technology within XPO has evolved over the years," Morgan Stanley's team, headed by Ravi Shanker, wrote in a September note. "Initially, tech was effectively used for integrating its roll up transactions. Now, technology has become a weapon to gain share and improve returns."

Shanker noted, "Technology is not just lip-service, it is part of the fabric of XPO."

Other logistics giants are stealing a page from XPO - and a new slate of logistics startups

XPO's competitors, many of which are older, family-run companies, are making heavy inroads on technology spend. A new group of freight startups like Convoy, and entrants from tech giants like Uber and Amazon, are likely driving that.

America's largest freight broker C.H. Robinson announced in September that it would double its technology spend over the next five years - hitting $1 billion. This week, it landed the No. 9 spot on the FreightTech 25 - an annual list from FreightWaves ranking the most innovative companies in logistics.

Meanwhile, some insiders say J.B. Hunt's brokerage app, J.B. Hunt 360, is the industry leader in brokerage technology. The 58-year-old, Arkansas-based company scored No. 4 on the FreightTech 25, which is the highest of any "traditional" logistics company.