GXO Logistics, (NYSE: GXO) — the largest global pure-play contract logistics provider, is uniquely positioned for sustained growth in the logistics sector. Spun off from XPO Logistics and publicly traded since 2021, GXO has established itself as a leader by leveraging technological advancements to deliver tailored supply chain solutions. Under the guidance of its non-executive chairman, Brad Jacobs, who has a proven history of building billion-dollar companies, GXO is set to navigate the current industry challenges and capitalize on major opportunities.
Since its inception, GXO has focused on serving a diverse portfolio of over 1,000 clients across various sectors. From warehousing to reverse logistics and e-commerce support, GXO’s services streamline supply chains, helping companies operate more efficiently. This approach has driven a revenue growth trajectory that outpaces GDP growth, with revenues expected to reach $15.5 billion to $16.0 billion by 2027. GXO’s commitment to long-term client partnerships has been a cornerstone of its success, resulting in double-digit EBITDA growth and a 36% operating return on invested capital.
Jacobs’ leadership has been instrumental in GXO’s evolution. His role in United Rentals and XPO demonstrates his expertise in building and sustaining successful businesses. Having raised $30 billion of capital throughout his career, Jacobs brings strategic insight into expanding GXO’s market reach through mergers and acquisitions (M&A). This strategy has contributed to GXO’s strong position in the logistics market.
GXO operates in an industry experiencing cyclical pressures, largely due to post-pandemic supply chain disruptions, rising costs, and higher interest rates. Despite this, GXO has maintained a solid balance sheet and achieved steady growth, particularly by tapping into the rapidly expanding e-commerce sector. According to Forbes, online retail sales are projected to grow by 8.8% in 2024 and reach 23% of total retail sales by 2027.
GXO’s focus on tech-driven solutions enables it to scale its operations efficiently to meet the growing demand for logistics services, solidifying its position in a $430 billion addressable market across North America and Europe.
Reshoring is another factor driving demand for GXO’s services. As global companies seek to mitigate risks associated with long supply chains, GXO benefits from policies such as the U.S. Inflation Reduction Act and the Buy America Act, which incentivize domestic manufacturing. With an increased preference for localized production, logistics providers like GXO are essential in establishing efficient domestic supply chains. As corporate strategies shift toward regional supply models, GXO’s reputation for excellence positions it to attract new clients and expand relationships with existing customers.
The company’s financial performance reflects its adaptability and resilience, with revenues increasing steadily from $6.1 billion in 2019 to nearly $9.8 billion in 2023. As GXO continues to capitalize on e-commerce growth and reshoring, revenue projections suggest a compound annual growth rate (CAGR) of 6.86% through 2028. GXO’s geographic diversification further supports its growth, with over 63% of revenues generated in Europe, positioning it to benefit from Europe’s anticipated post-recession recovery.
In addition to its robust revenue stream, GXO’s earnings per share (EPS) is trending upwards, having increased from $0.54 in 2019 to $1.92 in 2023, with estimates indicating further growth to between $2.70 and $2.90 in 2024. Trading at a relatively low forward P/E multiple of 16.8, GXO offers investors a favorable risk-return profile in an industry with substantial growth potential.
GXO has employed a targeted M&A strategy in recent years, exemplified by its acquisition of Wincanton Logistics in the UK for nearly $1 billion. This acquisition enhances GXO’s presence in Europe, a region where the company is well-positioned to capture a larger market share. The logistics sector’s cyclical downturn has created an environment ripe for consolidation, allowing GXO to pursue additional roll-up acquisitions of smaller companies. By selectively acquiring distressed assets, GXO is preparing itself for the next industry upturn, securing a larger footprint in a fragmented market.
Furthermore, the company has only tapped into 5% of the $430 billion logistics market in North America and Europe, leaving significant room for expansion. This market penetration potential is a key aspect of GXO’s long-term growth strategy, as it aims to build upon its market leadership through continued investment in technological innovation and operational excellence.
A notable advantage for GXO lies in its significant international revenue base, which would benefit from a weakened U.S. dollar. With nearly 70% of its revenues generated outside the United States, GXO is well-positioned to gain from favorable exchange rates as global initiatives and U.S. fiscal policies influence the dollar’s trajectory. Factors such as anticipated interest rate cuts, rising U.S. debt, and the BRICS alliance’s potential shift away from the dollar could further enhance GXO’s earnings upon currency conversion, particularly from European markets, where the company has a strong presence.
Nevertheless, GXO faces certain risks, notably the potential for a U.S. recession, which could impact global economic stability and disrupt supply chains. However, GXO’s operational resilience, built on a strong balance sheet and technological agility, provides a buffer against such macroeconomic fluctuations. Moreover, the logistics sector is vulnerable to disruptions from natural disasters and geopolitical tensions, but GXO’s geographic diversification and established client relationships help mitigate these risks.
However, GXO’s operational resilience, built on a strong balance sheet and technological agility, provides a buffer against such macroeconomic fluctuations.
Several catalysts are likely to propel GXO’s growth in the coming years. The ongoing trend of reshoring in the Americas and Europe will drive demand for GXO’s logistics services as companies shift from global to regional supply chains. Additionally, GXO’s ability to execute M&A deals in a favorable environment for acquisitions will enable the company to strengthen its market position and capitalize on industry consolidation.
The resurgence of manufacturing in the Americas and Europe, coupled with technological advancements in automation, positions GXO to benefit from heightened demand for logistics services. The adoption of innovative technologies in warehousing and distribution also offers GXO a competitive edge, as the logistics sector embraces digital transformation to meet evolving client needs.
With a strong growth strategy centered on reshoring, strategic acquisitions, and geographic diversification, GXO Logistics is well-prepared to navigate the challenges of the logistics industry and capitalize on major growth drivers. Brad Jacobs’ leadership, underscored by a focus on operational efficiency and customer relationships, sets the stage for GXO to consolidate its market leadership and achieve its revenue and EPS targets.
