G-X-Ugh

I try not to get too deep into any individual company around here, but GXO is one I am closely associated with and with it down 13% this morning I am getting a lot of pings on Twitter. So here goes nothing…

GXO, for those who don’t know, is a contract logistics company. To keep it simple, that just means they manage supply chains, warehouses, deliveries, and returns for big corporate customers. The company was spun out of XPO Logistics a few years ago, and is part of the Brad Jacobs wealth creating machine.

I’m very fond of this stock as a way to “play” e-commerce without investing in the cutthroat retail sector. But the stock hasn’t done much at all since it became independent. Part of the reason for that is GXO is very reliant on Europe, a region of the globe that has struggled in recent years. GXO is also caught up in a broader pull back in transport names due to customer concerns about the health of the economy.

Today’s drop is due to the surprise departure of CEO Malcolm Wilson. There doesn’t appear to be anything nefarious going on: Wilson will remain in his post during the search for his successor, with no quick timeline to find the replacement. And he is around the typical retirement age. But Wilson had given no previous indication that he was ready to hang it up, and indeed the company had been talking up the stability of management during investor road shows.

My impression is Wilson’s decision was a surprise to many within the company as well.

The backstory here likely has to do with October reports that GXO had hired bankers to explore a sale. As I said before, the stock has not done much as an independent. It is hard to really compare GXO to any other public company, but the stock trades at a multiple to earnings well below other asset-light logistics companies including C.H. Robinson and Expeditors International despite forecasting significantly better growth up ahead than either of those companies. As a believer in the stock myself, it was pretty easy for me to believe that some private equity or strategic buyer would also see value here and make an offer.

The speculation today is that Wilson’s departure is related to those acquisition discussions and might imply that a deal is off. If so, the stock reaction is a combination of the company losing a respected leader, and the stock losing whatever takeover premium was baked in due to the reports. The stock as I type is at $51.65. That’s about $1 above where it was in early October prior to the acquisition rumors. So, we’ve just come full circle.

A few quick thoughts:

• I think the world of Wilson and I am sorry to see him go. That said, I do believe GXO is a stable company and an attractive opportunity for a new leader and this was never a “bet the jockey” story for me. (As much as I like Wilson, for the reasons mentioned above I believe the reaction is much more due to the implied implications for a sale, and not the CEO himself.)

• Although in the short-term a nice big premium would be welcomed, if GXO ends up being what I think it can be a sale today would cost investors in the long term. I’m willing to be patient with this one.

• I’m not shocked that they couldn’t get a deal done. The board is likely to share my views on the long-term potential of this company. Otherwise, they wouldn’t be on the board. A buyer was likely trying to take advantage of an asset priced at a discount. It isn’t hard to believe that those two sides would have a hard time agreeing on a number that both provides some of that upside to shareholders while also still giving the buyer a bargain.

• I’ve been wrong on this one since the start, and I don’t advise anyone to take my advice here. GXO has been a stinker of a stock, trailing the S&P 500 by 35 percentage points since it began trading. And to be clear, the headwinds that have held it back so far are likely to continue into 2025. One of the reasons that a sale likely looked so attractive to some inside the company. Things could easily go south from here even if they do eventually improve over time. Given the stock is only where it was in early October, this fall is no insane buying opportunity.

Keeping on script, my plan is to do nothing. GXO as of yesterday was (I believe) a top five individual holding. It likely isn’t top 5 right now. I will not be buying or selling or doing anything.

It is shaping up as a pretty good day not to check too close on my portfolio.

Disclaimer: Fits and Starts DOES NOT provide financial advice. All content is for informational purposes only. Stocks mentioned are as reference only, and a mention should not be interpreted as a buy or sell recommendation. The author is not a registered advisor or a broker/dealer. DO YOUR OWN HOMEWORK. The information contained within is not and should not be construed as investment advice, and does not purport to be. The red zone has always been for loading and unloading of passengers. There’s never stopping in a white zone.

No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned.