GXO Logistics Manages Another Buying Opportunity

Key Points

• GXO Logistics pulled back into buy territory following strong results. 
• Guidance is perceived as weak but the market is mispricing the outlook. 
• Growth and deleveraging will continue in 2023. 

You may not be able to tell by the charts, but the GXO Logistics NYSE: GXO spin-off was the right move at the right time. The hiccups in supply chain productivity caused by the pandemic highlighted the benefits of this logistics specialist and are driving sustained growth for the company.

The Q4 results and guidance for 2023 left a little for the market to desire, and it caused a minor correction in the share prices but this is an opportunity for growth investors. While the guidance was a little light in respect to expectations, it calls for growth, and the earnings outlook is also favorable. 

The analysts are taking note of these results and have issued at least 2 new reports since the Q4 report was released. These come from Oppenheimer and Barclays, which upped their price target to an average of $57.50.

This is below the Marketbeat.com consensus target but has the consensus moving higher. Oppenheimer and Barclays have the stock pegged at a Buy/Strong Buy compared to the broader consensus of Moderate Buy. 

GXO Falls On Strong Results And Guidance 

GXO Logistics had a strong quarter and issued guidance ahead of the consensus estimate but marred by 1 thing: the guidance is the same as previously indicated and does not reflect the unexpected strength in Q4 results. Q4 revenue came in at $2.47 billion, up 9.3% over last year, beating the consensus by 80 basis points. The gains were driven by strength in the core business and the integration of Clipper. 

The company’s margin expanded, driving a 1200 basis point improvement in adjusted earnings. The earnings also beat by 1000 basis points and have the company’s financial situation improving. Regarding debt and leverage, the leverage ratio fell to 1.8X earnings during the quarter to cap off a record-setting year. 

The company’s guidance is good but comes with 2 negatives that are weighing on the price action now. These are the fact that growth is slowing from double-digits to mid-to-high-single digits and there was no increase to the outlook given the Q4 strength. The company announced $182 million in annualized revenue gained during the quarter, equal to about 7% of growth on its own. The takeaway for investors is that earnings of $2.30 to $2.50 is favorable compared to the consensus of $2.36 and leave the door open to outperformance. 

“We’re laser-focused on executing our long-term business plan, reaffirming the full-year guidance we provided at our Investor Day in January. While we expect a softer macroeconomic environment this year, our wins to date, combined with the predictability and resilience of our business, give us great confidence entering 2023,” said Malcolm Wilson, CEO of GXO Logistics. 

Institutions Support GXO Logistics 

The institutions like the outlook for GXO logistics if their activity is any guide. Since the company’s IPO, they have been net buyers and hold 99% of the stock. This is a tightly held issue which means any increase in buying activity will put upward pressure on the price. As it is, the price action appears to be reversing following a bottom hit in late 2022.

The post-release action has the stock testing support at the neckline of a Head & Shoulders Reversal Pattern. If the market confirms support at this level, the stock price should increase to the $65/$70 range by summer.