Echo Global Logistics (Update)
Echo Global Logistics (“ECHO” or “the Company”) was founded in 2005 to roll-up the transportation logistics / brokerage sector.
Our Initial Concerns About ECHO From September 2016 Proved Prescient: In our initial report entitled “Logistical Nightmare”, we warned about ECHO’s terrible management, failed roll-up strategy in the transportation logistics sector, aggressive use of Non-GAAP results, and its inability to maintain its competitive position in an increasingly technology-centric environment, would all lead to severe disappointment. ECHO’s analysts were calling for a $29 price target at the time, but with shares at $27, we argued the risk/reward was skewed towards 50% – 60% downside. With successive earnings disappointments, and mounting evidence that ECHO’s acquisition of Command Transportation in 2015 was a bust, ECHO suspended long-term guidance and its acquisition strategy in July 2017. ECHO’s share price reached a low of $13.00, hitting our long-term price target range.
Command Deal Increasingly Looks Like A Bust: Our initial report warned that ECHO significantly overpaid for Command Transportation, and encumbered its assets with $230m of debt for a people-intensive asset light business. ECHO hyped $200 – $300m of revenue synergies, and an integrated technology platform that would provide significant earnings leverage. After millions spent on integration costs, capital expenditures and even a fancy new headquarters, ECHO has failed to come even close to its revenue synergy target.