GXO Logistics(NYSE: GXO) was spun off from XPO (NYSE: XPO) in 2021 with a lot of promise and bright prospects. The company was created as the world's largest independent, pure-play contract logistics company with close to 1,000 warehouses in North America and Europe. Separating from XPO, the argument went, would allow the company to focus on acquisitions that best serve its own goals and use debt and equity compensation to advance the business.
In early 2023, GXO announced a set of bold goals, including 8%-12% organic compound annual revenue growth through 2027, and a 17% compound annual growth rate (CAGR) in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) through the same year, showing the company expects to grow rapidly.
In a challenging logistics environment, GXO has largely executed well, and the company has grown both organically and through acquisitions. However, the stock has been mostly stuck in neutral, trading at roughly the same price it was at the spinoff.
On Thursday, investors were greeted by news that GXO could sell itself. Bloomberg reported that the company had hired financial advisors after receiving takeover interest from multiple buyers.
Image source: GXO Logistics.
The GXO buyout equation
The news of a potential sale comes as a surprise as GXO has been growing through acquisitions, and seemed set to continue that strategy after bringing Clipper Logistics, PFSweb, and Wincanton into the fold over the last three years.
According to an unnamed source, GXO has received multiple high-quality offers, and no decisions have been made yet about whether to sell the company. The company could also remain independent after the takeover discussions.
At a market cap of $7 billion, the list of buyers that would be able to take over GXO seems relatively short. DHL, which is the largest contract logistics provider, has a significant position in both North America and Europe and looks like a good bet to be in the mix. UPS and FedEx also have large warehousing businesses.
According to a recent note from Vertical Research, other prospective acquirers include Maersk, the global shipping giant; DB Schenker, a privately held German rail operator and logistics company; and DSV, a global shipper and competitor to Maersk. DSV has also agreed to acquire DB Schenker.
Vertical Research Partners speculated that management wouldn't sell the company for less than $70 a share, representing a 40% premium from where the stock was trading before news of a potential buyout broke, and it also trades at a discount to its competitors. GXO stock closed up 14.1% on Thursday at $58.07.
Wall Street seemed to generally applaud the potential sale as well. In a separate note, Barclays said that GXO could be an attractive target for a private equity firm, and Jefferies argued that a sale would make sense as its current price undervalues the company.
Is GXO Logistics a buy?
With multiple buyers expressing interest in GXO, a bidding war could ensue for the logistics company.
GXO is a unique asset in the industry as it operates roughly 1,000 high-tech warehouses in North America and Europe, serving a wide range of customers in industries ranging from consumer electronics to apparel to manufacturing to food and beverage. There are also few pure-play contract logistics companies available for a potential acquisition, which also makes the business attractive for a global shipper like Maersk or DHL.
Even if a sale doesn't go through, the buyer interest should help put a floor under the stock, and if GXO remains an independent company, it should be able to take advantage of the expected acceleration of growth in the logistics industry as falling interest rates could lead to increased demand.
After Thursday's jump in the stock, it wouldn't be a surprise to see shares continue to rally as investors anticipate news of a sale. Given that expectation, buying GXO stock looks like a smart move.
Even if there's no sale, the 2027 goals remain well within reach, and the low valuation should help set GXO stock up for more gains.
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Jeremy Bowman has positions in GXO Logistics and XPO. The Motley Fool has positions in and recommends FedEx and Jefferies Financial Group. The Motley Fool recommends Barclays Plc, GXO Logistics, United Parcel Service, and XPO. The Motley Fool has a disclosure policy.
