GXO
🚚 GXO is a global leader in contract logistics outsourcing, managing supply chains for major companies like Nike and PepsiCo, benefiting from the trend of externalization.
🤖 Competitive advantages stem from scale, high customer retention (95%), long-term contracts, significant investment in automation and robotics (30% vs 8% sector average), and switching costs, particularly when GXO controls the facility.
📉 Recent share price decline, partly due to CEO departure (retirement), presents an attractive entry point (~11-12x earnings) for a quality company with strong growth prospects (15% EPS growth target) and a rejected takeover offer far above the current price.
@adriarivero:
“GXO is a new position, about 4% initially, but I like it and might increase. It’s in logistics outsourcing, spun off from XPO, led by the fantastic Brad Jacobs. He founded successful companies like United Rentals, United Waste, XPO itself. GXO handles the logistics part that companies outsource – managing orders, returns, warehousing. It’s one of the world’s largest. Brad Jacobs’ reputation is a plus. The recent CEO left (retiring, supposedly not a major issue), which partly caused the stock drop, but a replacement is sought. It has over 1200 clients, no high concentration, 50% are blue chips like Nike. Contracts are long-term (10-15 years) with 5-year renewals. So, large clients, recurring revenue. Competitive advantages? It manages the whole process from transport to fulfillment center (warehousing, software integration, returns) to final transport. High client retention (95%). Large clients (>$20M annual revenue) like Louis Vuitton, Versace, Nike, Pepsi, Boeing are stable; smaller clients (<$20M) are often high-growth firms needing rapid expansion. Two contract types: Open Book (cost + margin, misaligned incentives as GXO benefits from higher costs) and Close Book (55%, growing; fixed cost markup + variable cost structure where GXO profits from efficiency gains through automation, cost reduction). This aligns incentives better. The main advantage is robotics/automation (30% penetration vs 8% sector average) and switching costs. If a client has outsourced everything (logistics, software, orders) to GXO, switching is costly and time-consuming. However, the advantage is strongest when GXO leases/owns the distribution center and machinery. If the client (e.g., Nike) owns the lease and machinery (about 41% of cases), GXO mainly provides labor initially. This has less of a moat long-term and could be replaced by a cheaper labor provider. I need to investigate this 41% segment further. The company targets $15.5-16B revenue by 2027, 10% organic growth, 15% margin growth, leading to 15% EPS growth. Expects 30% ROIC and 30% free cash flow conversion. Current valuation is around 11-12 times adjusted EBITDA, down from high levels in 2021. This seems very reasonable. I bought around $40 and added near $32-33. A potential takeover offer at $85 was rejected in Oct 2024, suggesting significant upside potential."
Watch the exact part of the video where @adriarivero talks about GXO Logistics, Inc. here:
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Read more articles analyzing GXO Logistics, Inc. (GXO) at the following link. GXO stock.
