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 (NYSE: 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 sales.

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: BA), Nike (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 2023.

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 experience.”

 

What next for GXO stock price and investors?

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 right now.

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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