-$2.51
$2.17
bear -$2.51
base $0.19
bull $2.17
margin of safety $0.07
market price* $28.60
Business condition attached to the margin of safety
Cash generated by the business before interest, after stock compensation and normal capital spending and excluding working-capital swings, running at roughly $40 million a year or better for at least two to three consecutive quarters, with the 7.50% notes due November 2027 refinanced or repaid on acceptable terms.
RXO is a truck freight broker. It matches shippers who need loads moved with independent trucking companies, and it does not own trucks. Truck brokerage is about three quarters of 2025 revenue of $5.7 billion; the rest is last-mile delivery of heavy goods (the largest such service in the US), managed transportation and freight forwarding. RXO was spun off from XPO in November 2022 and, on September 16, 2024, bought Coyote Logistics from UPS for about $1.04 billion in cash. The largest customer is 11.4% of revenue and the top five are 23%. About 7% of revenue is outside the US. What the business earns. We measure what an owner could take out of the business each year: operating cash flow, less swings in receivables and payables, less stock compensation, less the capital spending needed just to stay in place. Before interest, this came to about $108 million in 2022, $40 million in 2023, $3 million in 2024 and $8 million in 2025 (2021 was a carve-out inside XPO and is not used). Revenue has been large but margins thin: 2025 revenue rose 26% on Coyote, yet the business produced almost no owner cash, with buy rates paid to carriers rising faster than contracted sell rates as trucking capacity left the market, $22 million of deal and integration costs, $38 million of restructuring and a $12 million goodwill write-down. The first half of 2026 has not improved: net losses were $45 million against $40 million a year earlier, and debt rose from $404 million at year-end to $495 million as growing receivables absorbed cash. We anchor on the median of 2022, 2023 and 2025 (about $40 million a year before interest), leaving out 2024 because it was distorted by the acquisition itself. Growth actually delivered in 2025 (last-mile volume up 13%) is not enough of a multi-year record, and Coyote cost savings are a management target, so no growth is credited in any case. The $47 million a year of amortization on acquired intangibles is added back, as it is a sunk purchase cost, but we let the earnings fade after year 10 (customer relationships were valued over 15 years) rather than assuming they last forever. Base case: about $40 million a year for ten years, then slowly declining 3% a year. That requires the deal and integration costs (down from $53 million in 2024 to $22 million in 2025) to be gone and restructuring to shrink; it assumes no freight recovery. The business is worth about $535 million. It owes about $495 million (the 7.50% notes of $355 million due November 15, 2027, drawings under a new $450 million asset-based credit line signed February 2026, and finance leases), plus about $7 million because the notes cost more than 6%, so about $502 million. The difference is roughly $33 million, or about $0.19 a share on 170 million shares. In effect, shareholders own a thin sliver of the business. Bear case: owner cash stays where it is now, about $8.5 million a year, as in 2024, 2025 and the first half of 2026, with the same fade. The business is worth about $114 million against debt of about $540 million (including roughly $45 million extra cost of refinancing the November 2027 notes at about 10%). In this case the company appears to owe more than it is worth, by about $425 million, or roughly $2.51 a share. Interest of about $32 million a year would exceed the cash the business produces. Bull case: the business's own cost levers fully deliver: transaction and integration costs disappear and restructuring largely stops, lifting owner cash to about $65 million a year. It is worth about $870 million against $502 million of debt, a difference of about $368 million, or $2.17 a share. We do not count on a freight-market recovery, share gains or Coyote synergy targets. What could prove this wrong. Upside: the second half of 2026 showing owner cash of $40 million a year or more, or truck buy rates falling back relative to contracted sell rates. Downside: restructuring recurring at the 2024-25 level ($33-38 million) would keep the business near the bear case, and the notes fall due in November 2027 while the business produces less cash than its interest bill. The ABL borrowing base depends on receivable quality and the bank covenants are only described as customary. We could not reconcile the first-half 2026 cash flow in detail (only the interim tagged data was available), so it informs the direction but not the level.