- GXO Logistics ( NYSE: GXO ) believes the potential economic downturn over the next 12 to 18 months will prove the resiliency of its business, according to Chief Investment Officer Mark Manduca.
- "When you prove yourself to the market through a downturn or whatever economic malaise that we are now faced with, let's call it over the next 12 to 18 months, that will be the making of our company," Manduca said in an interview with Seeking Alpha on Friday. "People will see how resilient this business model is. They will see our open book contracts, our closed book contracts, how they behave in a down cycle and that will be the making of our multiple as a result."
- Manduca explained that the warehouse logistics company's current multiple is unjustified, especially when you compare it to the private market where shipping companies and freight forwarding industry are willing to pay 12x-30x EBIT/EBITDA for business like GXO. The public market is still learning the GXO business post its spin last year and is only willing to pay 8x.
- "That dislocation doesn't last for long historically if you look at previous areas of dislocation," Manduca said. "That fixes it. That gap between the private and public markets fixes itself provided we deliver the results."
- "I'm keen to prove how resilient this business model is because it's one of those rare assets that has high growth coupled with resiliency and therefore it's deserving of an extremely high multiple," Manduca added.
- Steve Weiss of Short Hills Capital agrees and the highlighted the 16% organic revenue growth GXO produced in Q3.
- "It's selling at less than 6x EBITDA on next year's multiple," Weiss said in an interview with CNBC on Friday. "It's compellingly cheap and has been beaten up ...".
- GXO on Tuesday posted Q3 results that topped revenue and earnings estimates and reiterated its full year outlook. While its shares have dropped 50% this year, the logistics firm stock surged 28% this week helped by the stock market upturn and post its results.
- "Despite a muted peak and macro concerns heading into 2023, we remain buyers of GXO as it continues to set itself up with a solid foundation heading into uncertainty," Wells Fargo analyst Allison Poliniak-Cusic, who has an overweight rating and $70 price target, wrote in a note on Wednesday. "While growth is likely to slow in Q4, we believe GXO's strong sales pipeline, new business wins and its diverse contract structure will allow it to both grow top line and control costs in the event of a downturn."
- Manduca expects the Christmas season to be a little softer than last year as it's unlikely to be as strong as recent post-Covid holiday shopping seasons.
- "The consumer may be a little bit softer year over year from a sequential standpoint, but don't confuse that with weakness in our overall top line," according to Manduca. "Overall I think the consumer remains relatively robust. I think Christmas will happen, but I think it's more of normalized neutered Christmas trading season rather than your post-Covid fanfare."
- Manduca is also excited about the company's recently completed acquisition of UK-based Clipper Logistics , which he described as a "diamond."
- "So land and expand is our philosophy and I think that's going to be real surprise out of Clipper over the next three to five years," Manduca said. "There are going to be revenue synergies on top of the cost synergies."
- Also see, GXO Logistics rises to top industrial gainer of the week, while M&A plans drag down Chart.
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GXO Logistics says economic downturn will prove the resiliency of its business