GXO Logistics, Inc.: Margin Opportunities Abound; Upgrade to Overweight

Research evidence excerpt

GXO Logistics, Inc.: Margin Opportunities Abound; Upgrade to Overweight

ion. With respect to margins, Mr.

Kelleher has noted targeting margins "at or better than [GXO's] peer group." He specified at our

February Industrial Select Conference (see "Conference Takeaways") that the peer group

includes DSV, DHL and Ryder, and called out pricing as a powerful opportunity for margin

enhancement. We note that, as of 2025, GXO trailed market leaders by between 2-4% on an

EBITDA basis (see Figure 1). Closing that gap would mean an additional $1-4 per share in

earnings (see Figure 2).

If GXO executes on margin improvement and cash conversion plans, we see material

upside potential in the company's shares. One challenge in valuing GXO is the lack of directly

comparable companies, with only the relatively small ID Logistics (not covered) in France as a

(nearly) pure-play publicly traded contract logistics provider. Looking across the spectrum of

public companies with exposure to the contract logistics market, we see freight forwarding

providers such as DSV and Kuehne Nagel (and, to a lesser extent, Expeditors) trading at elevated

multiples due to large swaths of asset-light brokerage exposure; while GXO's owned asset

footprint is relatively small, when accounting for operating leases, the company's effective asset

exposure is considerable. Asset-intensive parcel integrators DHL and UPS, as well as trucking

provider Ryder, trade at lower multiples (6-8x 2027E US GAAP equivalent EV/EBITDA; see Figure

4). GXO currently trades at about a one-turn discount to the median of peers (excluding DSV and

Kuehne Nagel) and a 4x discount to the only pure-play competitor. In addition to the Amazon

and Europe fears discussed above, we believe the company's inconsistent cash conversion