We recently compiled a list of the 7 Cheap Transportation Stocks to Buy According to Analysts. In this article, we are going to take a look at where GXO Logistics, Inc. (NYSE:GXO) stands against the other cheap transportation stocks.
The 33rd Annual Study of Logistics and Transportation Trends was posted on Supply Chain Management Review (SCMR) on September 12. It highlighted the growing challenges facing the logistics and transportation industry as market conditions, regulations, and technological advancements evolve.
The study surveyed over 200 industry professionals, of which 85% had 15+ years of experience and 80% held senior positions. The report provides insight into spending trends, strategies, performance, and regulatory impacts.
The study noted a significant decline in private fleet spending, down to 7.23%, while intermodal transport spending reached a decade-high of 6.5%. Larger shippers (sales over $3 billion) generally align with these trends but spend less on small package and less-than-truckload (LTL) services.
All performance metrics tracked in the study saw declines from 2023, with profitability, return on assets, competitive positioning, and revenue growth all down. Customer satisfaction remained high but showed signs of strain.
Talent shortages were a critical issue, especially in mid-level management and low-wage positions. Companies struggle to offer training due to a lack of time and knowledgeable trainers, with only 39% having formal learning programs. While logistics jobs offer stability and growth opportunities, they are perceived to lag in flexibility and benefits.
Growth Despite Challenges
According to Benchmark International, the global freight and logistics market is projected to grow to $18.69 billion by 2026, with a 4.4% annual growth rate. The logistics segment alone is expected to reach $6.55 trillion by 2027, growing at 4.7% per year. The market includes services like transportation, warehousing, consultation, and packaging across several industries such as manufacturing, agriculture, and construction. Asia-Pacific leads the market share, while North America is expected to grow the fastest by 2027.
Some of the most significant drivers of growth include trade agreements, technological advancements, and globalization. Innovations such as AI, blockchain, and GPS have streamlined logistics operations. The surge in e-commerce and online shopping has also fueled demand for efficient delivery systems, especially “last-mile” services, which represent the costliest part of shipping. The rise of the gig economy, where local couriers fulfill deliveries, has helped reduce these costs.
Sustainability is becoming a focus in logistics, with green initiatives offering fuel savings and appealing to eco-conscious consumers. Furthermore, mergers and acquisitions in the trucking and maritime sectors are expected to increase in 2024, which are driven by lower interest rates and advancements in fleet management technologies.
Our Methodology
For this article, we used transportation ETFs to identify nearly 40 stocks. Next, we narrowed our list to 7 stocks with the lowest PE ratios and highest average analyst price target, as of September 20. The PE ratio of all the stocks in our list is lower than 20.
We also mentioned the hedge fund sentiment around each stock which was taken from Insider Monkey’s database of over 900 elite hedge funds. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A fleet of trucks leaving a depot, loaded with consumer goods, representing the companies logistical services.
GXO Logistics, Inc. (NYSE:GXO)
Average Analyst Price Target Upside as of September 20: 35.90%
PE Ratio (FWD) as of September 20: 18.54
Number of Hedge Fund Holders: 29
GXO Logistics, Inc. (NYSE:GXO) has positioned itself as a major player in the global logistics sector, which offers a range of services that include warehousing, distribution, order fulfillment, e-commerce solutions, and reverse logistics. It is among cheap transportation stocks to buy according to analysts.
Since its establishment as a spin-off from XPO Logistics in August 2021, the company has emerged as the largest pure-play contract logistics company in the world. This not only allows it to focus on its core logistics operations but also provides a pathway for growth through acquisitions in a vast and fragmented industry.
One of the company’s key strengths lies in its advanced technology integration. Currently, over 30% of its warehouses are equipped with cutting-edge technology, which improves efficiency and service quality.
With approximately 970 facilities covering nearly 200 million square feet globally, the company operates on behalf of companies that prefer to outsource their logistics functions. It identifies several key growth trends shaping the logistics landscape. It sees an increasing trend toward outsourcing as businesses concentrate on their core operations. The rise of e-commerce which demands expanded warehousing solutions is another growth area. Lastly, the growing emphasis on supply chain resilience in response to shifting global trade patterns is another growth trend that it focuses on.
In the second quarter, GXO Logistics (NYSE:GXO) reported a remarkable 19% increase in revenue. It was largely fueled by the acquisition of Wincanton, which significantly expanded its presence in the U.K. and enhanced its capabilities in critical sectors like aerospace and defense. The acquisition added more than 200 facilities to the company’s portfolio, further strengthening its operational footprint.
In the same quarter, the company secured $270 million in new business wins in annualized revenue, which shows a strong demand for its services. Furthermore, it is exploring the future of logistics through innovative technologies. For instance, it has introduced a humanoid robot in its warehouses as part of a pilot program in collaboration with Apptronik. The robot is capable of carrying 55 pounds and performing tasks like picking and packing.
In September, GXO Logistics (NYSE:GXO) took another step forward by announcing an agreement with Reflex Robotics to pilot its humanoid solutions for live operations. This second Robots-as-a-Service (RaaS) agreement showcases the company’s ambition to improve efficiency and productivity through cutting-edge robotics that can quickly adapt and learn from human interactions.
15 analysts have covered GXO Logistics (NYSE:GXO) and given it a consensus Buy rating. The average price target of $70.00 implies an upside of 35.90% to the stock’s last price, as of September 20.
Mar Vista Investment Partners, LLC stated the following regarding GXO Logistics, Inc. (NYSE:GXO) in its first quarter 2024 investor letter:
“GXO Logistics, Inc. (NYSE:GXO) experienced a setback this quarter. Customer volumes dropped 9%, stalling any organic growth. This slump was primarily driven by weakness in the omnichannel retail and consumer packaging sectors. As a result, the company’s 2024 forecasts fell short of analyst expectations, leading to a drop in share price after the announcement.
Despite cyclical headwinds, there are signs of a turnaround for GXO. Management indicated that customer volumes in January have already begun to improve. Additionally, they expect easier comparisons in the later half of 2024 to further aid recovery. To us, this suggests that the first half of 2024 may be the cyclical low point, with a rebound on the horizon. Over the next few quarters, GXO should get back on track towards achieving its long-term financial goals.”
Overall GXO ranks 2nd on our list of the cheap transportation stocks to buy according to analysts. While we acknowledge the potential of GXO as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is promising and trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.