We came across a bullish thesis on GXO Logistics, Inc. (GXO) on Value Don’t Lie’s Substack by Value Don’t Lie. In this article, we will summarize the bulls’ thesis on GXO. GXO Logistics, Inc. share was trading at $58.07 as of Oct 10th. GXO’s trailing and forward P/E were 49.21 and 17.06 respectively according to Yahoo Finance.
A busy warehouse filled with neat rows of hemp smokable and herb products.
GXO Logistics (GXO) is a global leader in warehousing and order fulfillment, providing supply chain services for a variety of industries. Spun off from XPO Logistics in 2021, GXO operates over 974 facilities worldwide, handling warehousing, distribution, and value-added services like reverse logistics and e-commerce fulfillment for large corporations.
GXO generates revenue through long-term contracts with its clients, offering two contract types: open-book (cost-plus) and hybrid closed-book, which mix cost-plus and fixed-price elements. This provides stable margins and revenue visibility, as GXO benefits from the megatrends of e-commerce growth and the increasing complexity of supply chains. With significant international exposure and over half its revenue tied to retail and consumer electronics, GXO is well-positioned to benefit from outsourcing trends. The company’s vast operations, including 199 million square feet of warehouse space, allow it to scale services efficiently for its customers.
Investing in GXO presents an attractive growth opportunity due to its strong long-term growth profile and reasonable valuation. Management targets annual revenue growth of 10% and EPS growth above 15% through 2027, driven in part by a series of acquisitions that added significant leverage but also potential for margin expansion. GXO’s acquisitions from 2022 to 2024, totaling $1.9 billion, have positioned the company to execute on these growth objectives, even though the share price has remained relatively flat since mid-2022, offering potential upside.
The valuation, at 17.7x earnings and a market cap of $6 billion, reflects a reasonable price considering the company’s projected earnings growth. At the midpoint of 2024 guidance, GXO expects $2.83 in EPS, which could grow to $4.30 by 2027 with a 15% CAGR. Furthermore, GXO’s EBITDA of $815 million converts to $285 million in free cash flow, although growth capex currently limits full cash flow conversion. With long-term industry tailwinds, stable customer contracts, and management’s aggressive growth targets, GXO offers a compelling investment case for those seeking exposure to the logistics sector with solid growth prospects and improving fundamentals.
GXO Logistics, Inc. is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 29 hedge fund portfolios held GXO at the end of the second quarter which was 39 in the previous quarter. While we acknowledge the risk and potential of GXO as an investment, our conviction lies in the belief that some 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 more promising than GXO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and 10 Best of Breed Stocks to Buy For The Third Quarter of 2024 According to Bank of America.
Disclosure: None. This article was originally published at Insider Monkey.