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On Monday, Stifel analysts reiterated their Buy rating and $66.00 price target for GXO Logistics Inc. (NYSE:GXO), despite an update indicating a delay in the acquisition process of Wincanton. The delay stems from an extended review by the U.K. Competition Authority, which has added an additional two months to the approval timeline. According to InvestingPro data, GXO's stock has experienced significant volatility, with shares down over 45% in the past six months, currently trading at $33.76.
The analysts noted that approximately $140 million in revenue, equating to 10% of the $1.4 billion deal, is at risk due to the regulator's strict interpretation of the U.K. grocery market. However, they believe that this segment is of lower margin and less significance, as it does not affect the potential synergies from the acquisition. The primary concern highlighted by Stifel is the potential for integration delays caused by the extended review, which does not align with the preferred narrative of seamless progress. The company maintains a solid revenue base of $11.71 billion over the last twelve months, with a healthy 19.75% revenue growth rate.
Despite this setback, Stifel remains positive on GXO's business model, citing its defensive nature in a volatile global economy. The firm points out that although GXO has business ties to China, the impact is likely less compared to other companies within their coverage group. This is due in part to GXO generating 70% of its revenues from the U.K. and Europe. InvestingPro analysis shows the company maintains a Fair financial health rating, though its short-term obligations currently exceed liquid assets.
In conclusion, while acknowledging the longer ramp for the company's growth story, Stifel sees GXO as an attractive investment opportunity. The analysts believe that the company's strong position in the U.K. and European markets provides a solid foundation, even as it faces regulatory hurdles in its acquisition endeavors. For deeper insights into GXO's valuation and growth prospects, InvestingPro subscribers can access comprehensive analysis, including 8 additional ProTips and detailed financial metrics in the Pro Research Report.
In other recent news, GXO Logistics has extended its partnership with Grupa Żywiec, focusing on optimizing logistics operations at the Elbląg facility in Poland. This collaboration has led to significant sustainability achievements, including a 70% reduction in energy use and the development of paperless storage processes. Additionally, GXO Logistics' Long-Term Issuer Default Rating was downgraded by Fitch Ratings to 'BBB-' from 'BBB' due to underperformance relative to expectations, customer attrition, and challenges in integrating the Wincanton acquisition. Despite this, Fitch maintains a stable outlook for the company. Meanwhile, the UK Competition and Markets Authority has raised concerns over GXO's acquisition of Wincanton, citing potential competition issues for a segment of large customers in the UK.
Analysts at TD Cowen and Stifel have maintained their Buy ratings on GXO Logistics, with price targets of $62 and $66, respectively. TD Cowen's analyst highlighted potential opportunities for GXO in the logistics sector, while Stifel expressed confidence in GXO as a Growth at a Reasonable Price investment, especially with the impending approval of the Wincanton acquisition. Stifel's discussions with GXO management provided insights into strategic opportunities and contract realignments. These recent developments indicate a dynamic period for GXO Logistics, as the company navigates regulatory challenges and seeks to capitalize on growth opportunities in the logistics sector.
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