GXO Logistics says economic downturn will prove resilience of its business (NYSE:GXO)

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GXO Logistics (NYSE:GXO) believes the potential economic downturn over the next 12 to 18 months will prove the resilience of its business, according to Chief Investment Officer Mark Manduca.

“If you prove yourself to that Market through a downturn or whatever economic malaise we’re facing now, let’s call it over the next 12 to 18 months, that’s going to be the trajectory of our business,” Manduca said in an interview with Seeking Alpha on Friday. People will see how resilient this business model is. They’re going to see our open book contracts, our closed book contracts, how they behave in a down cycle, and that’s what our multiple will result from.”

Manduca explained that the warehouse logistician’s current multiple is unjustified, especially when compared to the private market, where shipping and trucking companies are willing to pay 12x to 30x EBIT/EBITDA for companies like GXO. The public market is still learning the GXO deal after its spin last year and is only willing to pay 8x that.

“This dislocation doesn’t last long historically when you look at past dislocation areas,” Manduca said. “That fixes it. This gap between the private and public markets will fix itself provided we deliver the results.”

“I’m dying to prove how resilient this business model is as it’s one of those rare assets that has high growth coupled with resilience and therefore earns extremely high multiples,” Manduca added.

Short Hills Capital’s Steve Weiss agrees, highlighting the 16% organic revenue growth that GXO delivered in Q3.

“It’s selling at less than 6x EBITDA versus next year’s multiple,” Weiss said in an interview with CNBC on Friday. “It’s irresistibly cheap and has been beaten up…”.

GXO on Tuesday released third-quarter results that beat sales and earnings estimates and reiterated its full-year outlook. While its shares have fallen 50% this year, the logistics company’s stock rose 28% this week, helped by the rebound in stock markets, and released its results.

“Despite a muted peak and macro concerns into 2023, we remain buyers of GXO as it continues to position itself on solid foundations into uncertainty,” Wells Fargo analyst Allison Poliniak-Cusic, who has an overweight rating and a target price of $70, he wrote in a note on Wednesday. “Although growth is expected to slow in the fourth quarter, we believe GXO’s strong sales pipeline, new business wins and diverse contract structure will allow the company to both grow revenue and control costs in a downturn. “

Manduca expects the holiday season to be a little weaker than last year as it is unlikely to be as strong as recent post-Covid Christmas shopping.

“The consumer may be a bit softer year over year from a sequential standpoint, but don’t confuse that with the weakness in our overall revenues,” Manduca said. ÔÇťOverall, I think the consumer remains relatively resilient. I think Christmas will happen, but I think it’s more of a normalized castrated Christmas trading season than your post-Covid fanfare.”

Manduca is also pleased about the recently completed acquisition of the British company Clipper Logistics, which he described as “diamond”.

“So land and expand is our philosophy and I think that’s going to be a real surprise for Clipper over the next three to five years,” Manduca said. “With cost synergies there will be revenue synergies.”

Also, GXO Logistics Rises to Top Earner of the Week as M&A Plans Drag Down the Charts.


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