GXO Logistics (NYSE:GXO)

GXO Logistics is a pure-play contract logistics company that manages the outsourced supply chains many of the world’s largest and most successful companies. And by world’s largest and most successful companies, I mean:

Apple, Nike, Walt Disney, Nestlé, Gucci, Intel, Coca-Cola, PepsiCo, Verizon, Kellogg’s, Whirlpool, SC Johnson, Hershey’s, L’Oréal (and far too many more to list in a short CAPS pitch).

GXO Logistics is investing heavily in supply chain automation technology. GXO has about 30% (and quickly-growing) automation penetration in its facilities compared to about 5% penetration in their competitors’ facilities. This puts GXO light-years ahead of its competitors. It is this automation that is helping to improve GXO’s labor productivity by up to 6 times and is the reason why Apple, Nike, Walt Disney, Nestlé and the like are all partnering with GXO to manage their global supply chain operations.

GXO is approximately 4-8 times larger than its three nearest pure-play contract logistics competitors. This is an industry where size and scale will make all the difference. The largest contract logistics companies will only get larger. As that happens, it will become increasingly more difficult for smaller competitors to make the necessary investments (technology investments or investments in skilled employee recruitment) to compete in any meaningful way with GXO. Capital expenditure each year for GXO is around $250 million, with about half of that $250 million being technology. That will be a tough hurdle for smaller competitors to clear now and especially going into the future.

GXO Logistics is a high-conviction investment for me. And at today’s valuation (as of June 23, 2022), I can make the argument that my high-conviction investment is also undervalued compared to other publicly-traded technology outsourcing companies. I have no idea what will happen to the share price in the short-term, but I am quite confident that GXO Logistics will outperform the market over the long-term (3 to 10+ years).