GXO Logistics ( GXO -1.16% ) is the biggest company that specializes solely in contract logistics.
The company was separated or split from XPO In 2021, the decision was made based on the idea that by operating as individual entities, each company would have the freedom to pursue acquisitions according to its own goals and invest capital in a manner that aligned with its strengths.
GXO has successfully implemented their plan by acquiring three companies within a span of three years and experiencing growth through internal efforts. Nevertheless, the company has faced difficulties due to a slow economy. The aftermath of the pandemic led to an excess of inventory, causing many customers to prioritize reducing their stock over the past year. Additionally, the industrial sector has been experiencing a downturn.
Over the past few years, GXO shares have mostly moved in a horizontal direction, and the stock price was slightly above its lowest point in a year after the second-quarter financial results were released. Currently, it has dropped by 54% from its highest point after the company was separated from its parent company in the flourishing stock market of 2021.
Is it a good idea for investors to capitalize on the recent decrease in stock prices? Let’s analyze GXO’s current position following the most recent report.
Credit: GXO for the image.
GXO continues to work persistently.
On Tuesday, GXO’s stock price dropped by 5% following the release of its earnings report. While the results were largely as expected, the company’s organic revenue only grew by 2%, which was at the lower end of their annual forecast. Additionally, earnings were negatively impacted by challenges in the overall economic environment.
Revenue increased by 19% to $2.8 billion in the quarter, mainly driven by the purchase of Wincanton in the second quarter. This acquisition strengthened the company’s position in the U.K., particularly in important sectors such as aerospace and defense, and expanded GXO’s facility count by over 200.
Expenses related to incorporating Wincanton had a negative impact on profits as adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) decreased. EBITDA The revenue decreased from $190 million to $187 million, and the adjusted earnings per share dropped from $0.70 to $0.55.
GXO reported a boost in momentum as its sales pipeline grew to a record high of $2.3 billion over the past year. In the quarter, the company secured new business contracts with an annualized revenue of $270 million.
GXO’s edge
The logistics sector has transformed from conventional manual processes to being largely automated, with GXO making significant investments in technology, recognizing it as a key asset.
During a conversation with the Motley Fool, Kristine Kubacki, the Chief Strategy Officer of GXO, emphasized the significance of technology.
Recently, GXO launched a humanoid robot in its warehouse as a trial initiative. In collaboration with Apptronik, the company has implemented a versatile industrial humanoid robot that stands at a height of 5 feet 8 inches, has a weight capacity of 55 pounds, and operates using interchangeable batteries. This robot is capable of performing duties such as selecting and packaging items.
GXO is increasingly using artificial intelligence to set itself apart, by leveraging cutting-edge AI technology to enhance the picking process, streamline inventory management, and forecast when inventory needs to be replenished.
Is GXO a buy?
During the earnings call, GXO management informed investors that the inventory situation was getting better after reaching its lowest point in Q4 of the previous year. They anticipate a more typical holiday season this year and anticipate that the company will have an advantage with more favorable year-over-year comparisons in the later part of the year.
In the meantime, GXO is concentrating on achieving its objectives for 2027. These goals include achieving an organic revenue growth rate of 8% to 12% annually from 2021 to 2027, with revenue expected to reach $17 billion. Additionally, the company aims for an adjusted EBITDA growth rate of 17% to $1.6 billion and generating $2 billion in cumulative free cash flow during that period.
At present, GXO has a total value of $10.6 billion for its business operations, indicating that its market value is about six times its estimated EBITDA for the year 2027.
It will require some time for the business momentum to pick up again, however, the decrease in interest rates is expected to stimulate the economy. GXO’s technological edge and worldwide presence are likely to assist in attracting new customers and expanding current partnerships in the future.
Patient investors may find the stock appealing at its current price due to its attractive valuation and the anticipation of a rise in organic growth rate in the future.
