XL Fleet Corp. (XL) is a leading vehicle electrification solutions provider for commercial and municipal fleets in North America. XL offers a comprehensive suite of fleet solutions and does not produce its own vehicles. Rather, it outfits existing commercial-grade trucks from established players like Ford Motor (F), Isuzu and General Motors (GM). The company’s electric drive systems can increase fuel economy 25% to 50% and reduce carbon dioxide emissions 20% to 33%, decreasing operating costs and meeting companies' sustainability goals.
XL was founded in 2009 to tap into the emerging electric vehicle economy. In September, this decade-old company completed a previously announced reverse merger deal with Pivotal Investment Corporation II (PIC), a publicly traded special purpose acquisition company (SPAC) and has begun trading under an independent ticker.
In the last reported quarter (ended September 30, 2020), XL recorded its highest revenue for a single quarter in its history. The company reported top-line revenue of $6.3 million, representing a 142.3% gain year-over-year on the back of XL’s core hybrid and plug-in electric drivetrain business. The company has expanded its gross margins to 12.1%, versus negative 3.7% in the prior-year quarter.
With robust vehicle electrification efforts, XL is expected to benefit from favorable market and regulatory trends. This, combined with potential upside based on a few factors, has helped it earn a “Buy” rating in our proprietary rating system.
Here is how our proprietary POWR Ratings system evaluates XL:
Trade Grade: B
XL is currently trading higher than its 50-day and 200-day moving averages of $14.69 and $11.43, respectively, indicating that the stock is in an uptrend. In fact, the stock’s 83.8% return over the past month reflects solid short-term bullishness.
As part of the deal, XL received approximately $350 million in proceeds, including $150 million from new strategic investors. The funds are expected to be used to advance XL’s position as a leader in fleet electrification through the development of new products, including all electric and Class 7-8 solutions.
XL also aims to expand into manufacturing charging infrastructure and offering its complete Electrification as a Service (EaaS). On December 1, the company entered into a partnership with a commercial EVSE (electric vehicle supply equipment) supplier to launch of its XL Grid division to provide charging infrastructure, energy storage and power solutions for electrified fleets.
Buy & Hold Grade: C
In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers, XL is not positioned well. The stock is currently trading 23.3% below its 52-week high of $35.00.
On December 16, XL announced the expansion of its line of electrified powertrains to include a hybrid electric drive system for Ford’s Class 5 F-550 Super Duty chassis, with deliveries expected to begin before the end of 2020. In November, XL announced that Farmbro Inc., an Ontario-based upfitting solutions service provider specializing in commercial and work vehicles, expects to double its sales volume from approximately 1,000 XL unit installations in 2020 to more than 2,000 in 2021 to meet an increasing demand for fleet electrification in Canada.
Moreover, the company plans a fully electric system by 2022 and is striving to accelerate XL Fleet’s plans to expand internationally also. XL Fleet has a 12-month sales pipeline worth $220 million. It is also targeting revenue of $21 million in 2020 to grow to $75 million in 2021, and to $647 million by 2023, in pursuit of a $1 trillion market.
Overall POWR Rating: B (Buy)
Overall, XL is rated a “Buy” due to its strong product portfolio, highly scalable business model, and solid price momentum, as determined by our overall POWR Rating.
Bottom Line
There is no doubt that the EV space is getting crowded and XL represents the combination of SPAC and EV, the two trends to which investors have rallied this year. However, unlike other EV-related SPAC deals, XL is an established player, and its products are already live. XL is pioneering a unique and compelling plug-and-play solution for fleet electrification. With increased adoption from existing customers, and the continued expansion of new customer relationships, the company’s projections look realistic.
In words of Tod Hynes, XL founder and chief strategy officer, “Since announcing the merger in September, XL Fleet has maintained our strong momentum, achieving record quarterly revenues, launching our XL Grid charging infrastructure division, expanding our plug-in hybrid electric product line onto GM vehicles and securing meaningful new orders.”
Analyst sentiment, which gives a good sense of a stock’s future price movement, is impressive for XL. Analysts expect the company’s current-year revenues to grow 6.4% year-over-year. Moreover, its EPS is expected to grow at a rate of 21.9% per annum over the next five years. As an integral part of the EV boom, XL is well-positioned to revolutionize commercial trucks with its hybrid electrification systems in the long run.
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XL shares were trading at $25.10 per share on Tuesday morning, down $1.74 (-6.48%). Year-to-date, XL has gained 152.52%, versus a 17.88% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies.
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