GXO - GXO Logistics: Market Short-Sightedness Creates Buying Opportunity

2024-05-27 10:37:18 ET

Summary

• GXO Logistics has had a slight pause in growth, but its outlook looks promising.
• Currently operates with ROIC below WACC, but there will be a significant improvement in returns in the next couple of years.
• GXO's profitability has been impacted by investments in automations, acquisitions, external factors like higher interest rates.
• According to their guidance, GXO will achieve a EBITDA of $1.3 billion in 2027, which is equal to a share price of $130 with today's multiple.
• I rate GXO a buy based on strong DCF valuations, and I am willing to bet against the market pessimism.

Introduction

GXO Logistics ( GXO ) has really captured my attention over the last few months. As one of the only pure-play, publicly traded warehouse logistics companies out there, GXO is what captured my attention at first, but when I dived into their business, I discovered what I believe to be a significantly under-appreciated stock. More so, I believe the market is currently undervaluing this business, and I am willing to bet against that pessimism. With the analysts, I also believe that GXO can recapture the great double-digit growth of old, and I think this company is well-positioned to take advantage of ongoing trends within their sector, which are: nearshoring, e-commerce, and omnichannel retailing.

Sector analysis

Segments

GXO Logistics main customers are in the omnichannel retail segment, and it is about 40% of their customer base. The other 60% belongs almost equally to the other segments, which are technology and consumer electronics, food and beverage, industrial and manufacturing, and consumer packaged goods. ...

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