GXO Logistics, Inc. (GXO): Did this Freight Stock Beat the Market in Q1?

We recently compiled a list of the 11 Best Freight Stocks To Buy Now. In this article, we are going to take a look at where GXO Logistics, Inc. (NYSE:GXO) stands against the other freight stocks.

The Red Sea Crisis & Shipping Challenges

The Red Sea accounts for 30% of global container trade via the Suez Canal. According to a report by JP Morgan, the Houthi attacks have disrupted the entire supply chain, forcing companies to reroute around Southern Africa, adding 4,000 miles to every journey. Rerouting will increase transit times by almost 30% and global container shipping capacity will decline by almost 9%. The report suggests that spot rates have soared amid the crisis. Spot rates in January 2024 from China to the US West and East Coast rose by 140% to 120% compared to November 2023. Jamie Dimon's investment bank expects trade disruptions to add 0.7 percentage points to global core goods inflation, and 0.3 percentage points to overall core inflation.

On May 6, Reuters reported that Maersk, the shipping giant, predicted that the crisis would cut the industry's capacity by almost 20% between Asia and Europe in the second quarter of 2024. Large shipping companies have diverted routes around Africa, leading to a rise in freight costs and shipping time. According to the Danish shipping group, shipping costs between Asia and Europe are now 40% higher for every journey. While experts expect the crisis to slow down before the end of 2024, the uncertainty and risk attached to the future of shipping are costing major shipping companies. To counter bottleneck situations and fuel faster sailing, companies are increasing their shipping capacity. The company has so far released over 125,000 additional containers. You can also read our piece on the most advanced countries in logistics.

Technology Disrupting the Freight Industry

While the Red Sea crisis is a major headwind for the freight industry, technological advancements will be monumental for the sector's growth. Companies like GXO are using technology to disrupt the industry. You can also take a look at the richest billionaires in the logistics industry.

On May 14, the company deployed robots for a global sporting goods retailer in France. The robotics solution was designed to reduce the order processing time and improve response time to seasonal volume changes. The solution is deployed across 12,000 square meters at the site. The solution includes 500 autonomous mobile robots that manage 70,000 bins on 5.5-meter tall storage racks. In 2023, the company increased its automated and tech systems by 50% and is actively working to integrate machine learning and artificial intelligence. Here are some comments from the company's Q1 2024 earnings call:

"Automation is a key tenant of our value proposition. And we’re the first mover in trialing the integration of cutting-edge automation like humanoid and AI inside the four walls of the warehouse. We’ve recently introduced some exciting innovations in AI. First, the warehouse optimization pilot we mentioned last quarter was a success driving a productivity increase of approximately 15%, and we’re rolling out the app across our sites as we speak. Second, we’ve recently piloted a proprietary workforce management tool, which we developed in-house. Our tool makes more than 15 million decisions per minute to streamline inventory replenishment and adding about 7% of capacity at no additional cost. We will be deploying this solution broadly across our operations starting this year."

Now that we have studied the freight industry, let's discuss some of the best freight stocks to buy now. You can also read our piece on the best transportation stocks to buy.

Our Methodology

To come up with the 11 best freight stocks to buy now, we went over our own rankings, similar rankings on the internet, and three transportation ETFs. We created an initial pool of 30 freight stocks and selected the top 11 with the largest number of hedge fund holders as of Q1 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

A fleet of trucks leaving a depot, loaded with consumer goods, representing the companies logistical services.

GXO Logistics, Inc. (NYSE:GXO)

Number of Hedge Fund Holders: 39

GXO Logistics, Inc. (NYSE:GXO) is one of the best freight stocks to buy now. The company is a global contracts logistics company responsible for managing outsourced supply chains, warehousing, and reverse logistics.

39 hedge funds disclosed having stakes in GXO Logistics, Inc. (NYSE:GXO) at the end of Q1 2024. The total value of these stakes amounted to $1.03 billion. As of March 31, William B. Gray's Orbis Investment Management is the largest stockholder in the company and has a stake worth $769.63 million.

On May 7, GXO Logistics, Inc. (NYSE:GXO) reported market-beating earnings for the fiscal first quarter of 2024. The company generated a revenue of $2.46 billion, up 5.73% year-over-year and ahead of Wall Street estimates by $41.3 million. The company reported earnings per share of $0.45, ahead of market consensus by $0.2. Wall Street is Bullish on GXO Logistics, Inc. (NYSE:GXO). Based on price targets from 14 analysts, the company has a median price target of $72.5, representing an upside of 52.25% from its current price of $47.62.

To push its favorable stance on AI and automation, in the first quarter of 2024, the company closed its Wincanton deal, bringing $1.8 billion in revenue and 20,000 employees to GXO. Earlier this year, the company made some moves in artificial intelligence, by partnering with Dexterity, an AI-backed robotics firm to make operations for a beauty brand more efficient and safe. These AI robots can label packages and manage inbound and outbound warehouse processes.

By 2027, the company expects revenues to range between $15.5 and $16 billion and adjusted EBITDA to range between $1.25 billion to $1.3 billion. Analysts polled by Yahoo Finance expect the company to grow its earnings by 8.11% in 2024 and 27.03% by 2025. Here are some comments from Aristotle Capital Boston's Q2 2023 investor letter:

"GXO Logistics, Inc. (NYSE:GXO), a pure-play contract logistics company that offers warehousing, distribution, fulfillment, e-commerce, reverse logistics, and other custom solutions, was added to the portfolio. As one of the largest warehouse logistics providers in the world, we believe the company remains well positioned to benefit from a variety of secular tailwinds including: increases in outsourcing of fulfillment capabilities, automation of warehouse operations, global ecommerce growth and adoption, and nearshoring of warehouse and distribution networks."

Overall GXO ranks 10th on our list of the best freight stocks to buy. You can visit 11 Best Freight Stocks To Buy Now to see the other freight stocks that are on hedge funds’ radar. While we acknowledge the potential of GXO as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GXO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.