Perhaps no sector is thought to be as boring as logistics. Yet, in today’s post-pandemic world, if you’re looking for profitable investing opportunities, logistics is also one of the most exciting sectors for investors. That’s why I’m bringing to your attention the world’s largest pure-play contract logistics provider, GXO Logistics (GXO), which owns about 900 warehouses in 25 countries.

GXO was spun off last August from trucking company XPO Logistics (XPO). And before you think the spin-off is just a company that owns warehouses, I want to let you in on a little secret: GXO is a technology company, too.

GXO’s Leading Logistics Technology

Let me fill you in on the massive three-pronged opportunity for growth that lies ahead for GXO Logistics.

First, there is ecommerce. Globally, ecommerce penetration of overall sales is only about 20%. Obviously, that leaves a lot of room for expansion.

Next, we have outsourcing. Only about 30% of logistics operations are outsourced to firms like GXO. Companies still keep the other 70% in house. But with the all the problems in the global supply chain over the past two years, we’ll see a lot more company outsourcing logistics, as they cut costs and remove a major headache for themselves that has tied-up a lot of manpower.

Finally, there is factory automation. Warehouse automation penetration is a mere 5%. That leaves a lot of territory for GXO to fill with its warehouse automation technology.

GXO’s technology runs the gamut, deploying both traditional automation systems, such as automated storage and retrieval systems (AS/RS), conveyors and sorting, and palletizing systems, as well as emerging technologies such as mobile goods-to-person robotics, collaborative robotics, and three-dimensional robotic storage solutions.

Speaking of its technology, the latest earnings results showed how fast GXO’s tech is gaining adoption.

Outstanding Fourth-Quarter Results

GXO’s fourth-quarter earnings showed that roughly 30% of the company’s revenue comes from automated sites. This is substantially higher than the 5% automation rate of warehouses overall. Looking a little deeper at the numbers, GXO states that year over year, its total technology and automated systems grew 94%, goods-to-person systems grew 103%, and cobots (collaborative robotics) grew 223%.

These statistics clearly show that GXO is advancing its technologies even faster than the rapidly expanding technology markets are growing as a whole.

The rest of GXO’s results were also impressive: it breezed past its own guidance as well as Wall Street estimates. The company’s overall revenue jumped 28% to $2.26 billion, well ahead of estimates at $2.05 billion. Organic growth was at 19%, an impressive clip for a company operating in what so many think of as a boring and mature industry like logistics.

On the bottom line, GXO’s adjusted EBITDA improved from $146 million to $167 million, and the company posted adjusted earnings per share of $0.73, up from $0.43 for the same quarter last year, and better than estimates of $0.52.

GXO’s growth in ecommerce was outstanding, with a 45% growth in revenue and a 28% jump in reverse logistics, a.k.a. returns processing. These are two core growth markets for the company. Its ecommerce, omnichannel and consumer tech segment now makes up more than half of revenue.

What Comes Next for GXO?

As the world’s largest contract logistics provider, GXO is benefiting from scale and its ability to serve multinational corporations that need a logistics partner that can offer high-tech automated solutions.

That’s why I believe that the 30% of the company’s revenue that comes from automated facilities will grow substantially in the years ahead.

GXO—like its former parent XPO—will also grow through smart acquisitions. In fact it already is. The company agreed to buy the U.K.’s Clipper Logistics PLC for $1.3 billion in cash and stock. Clipper Logistics’ turnover has doubled since 2017 and its shares have tripled since the start of the pandemic, which supercharged growth in online shopping in the U.K. and Europe.

Clipper runs warehouses for retailers in the U.K. and Europe (particularly those in the fashion sector), helping them process online orders, including returns, and repairs for electronics. The deal will extend GXO’s geographical reach to Germany and Poland, as well as adding the fast-growing life sciences sector to GXO’s portfolio of sectors served.

Bottom line: there is lots of growth ahead for GXO, which has not yet been priced by Wall Street. The company has a mere 5% of the outsourced logistics market, even though it is the world’s largest pure-play contract logistics provider. And keep in mind that outsourcing is growing. Currently, it accounts for just a third of the $430 billion market for logistics in Europe and North America, according to Jefferies. All these factors make GXO stock a buy at any price in the $80s.

— Tony Daltorio

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Source: Investors Alley