GXO Logistics: An Undervalued Stock With Massive Upside Potential
The market sell-off in 2022 has
dragged the valuations of several stocks lower. While the stock
market volatility is quite turbulent, investors can now consider
buying quality companies at a discount.
One such company part of the
logistics vertical is GXO Logistics
GXO). Valued at a market
cap of 4.4 billion, GXO stock is currently trading almost 70% below
its 52-week high.
Let’s see why I’m bullish on GXO
stock right now.
The bull case for GXO stock in 2022
GXO provides logistics services
globally that include warehousing and distribution, order
fulfillment, and e-commerce, in addition to reverse logistics or
returns management services. The company ended Q3 with 950
warehouse locations across 28 countries, spanning 200 million in
total square feet. Around 25% of the Fortune 500 companies are
GXO’s customers allowing it to end 2021 with almost $8 billion in
In Q3 of 2022, GXO increased
sales by 16% year over year to $2.3 billion. Its net income and
adjusted EBITDA (earnings before interest, tax, depreciation, and
amortization) stood at $63 million and $192 million, respectively.
Further, the company reported an operating cash flow and free cash
flow of $116 million and $47 million, respectively, in the December
quarter. Its EBITDA surged by 20%, while adjusted earnings were up
34% year over year in Q3.
GXO explained that new business
wins in Q3 are likely to generate $158 million of additional sales
each year. The company signed new contracts with existing and new
customers as it continues to grow its market share with several
international brands. GXO signed new contracts with giants such
as Boeing (NYSE:
NKE), and LVMH in the September quarter.
Based on its customer wins, GXO
has secured close to $500 million of incremental sales for 2023,
providing stakeholders with enough revenue visibility for the next
year. Its sales pipeline remains strong globally, and its
warehousing outsourcing business has a pipeline of $2 billion in
GXO states, “We’ve seen in the
past that this demand for our services and solutions will
accelerate during a period of economic uncertainty, as customers
look to reduce costs, while improving the consumer
What next for GXO stock price and
GXO reported the seventh
consecutive quarter of double-digit revenue growth in Q3 on the
back of stellar revenue retention rates that are well over 90%. Its
adjusted earnings surged higher due to a rise in EBITDA and lower
cost of financing. The return on invested capital remains above the
company’s target of 30%, making it among the top stocks to buy
Analysts tracking the company
expect GXO’s sales to rise by 13.8% to $9 billion in 2022 and by
8.3% to $9.8 billion in 2023. Its adjusted earnings per share might
expand from $2.09 in 2021 to $2.89 in 2023.
So, GXO stock is priced at less
than 0.5x forward sales and 12.8x forward earnings, which is quite
reasonable, as the bottom line is forecast to rise by almost 14%
annually in the next five years.
Analysts tracking the stock
remain bullish on GXO and expect shares to rise by 80% in the next
year. GXO is truly an undervalued stock that is trading at a
discount and is well-poised to stage a turnaround when the market
recovers in 2023.
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