It's been a little more than a year since GXO Logistics (GXO -1.41%) first went public after it was spun off from XPO Logistics.

Shares initially jumped after the separation last August, but GXO, the world's largest pure-play contract logistics company, has slumped since then, falling 54%. That decline reflects the market's fears that a recession will hit GXO and the rest of the logistics sector since these companies depend on shipping volumes and, therefore, end-consumer demand.

But despite the weak stock performance, GXO's latest results indicate the company is showing little sign macroeconomic pressure. 

A robotic arm moving pallets at a GXO warehouse.

Image source: GXO Logistics.

Full speed ahead

In its third-quarter earnings report out last week, GXO posted 16% revenue growth to $2.3 billion, and 16% organic growth, showing the company continuing to deliver robust growth in a difficult environment. 

Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), meanwhile, increased 19% to $192 million, and adjusted earnings per share jumped 34% to $0.75.

In the third quarter, GXO closed on its acquisition of Clipper Logistics, bringing the British logistics operator known for its strength in returns management under its fold. GXO, which now operates nearly 1,000 warehouses around the world, continues to see strong demand from sectors like e-commerce, omnichannel retail, consumer packaged goods, and manufacturers looking to outsource their logistics management.

GXO's outlook also showed it expects to deliver strong growth into the fourth quarter, despite rising interest rates and other macro headwinds. For the full year, the company called for organic revenue growth of 12% to 16%, adjusted EBITDA of $715 million to $750 million, and adjusted earnings per share of $2.70 to $2.90. Based on that forecast, the stock trades at a modest price-to-earnings ratio of just 16.

Why GXO can beat a recession

While the logistics industry is cyclical, GXO does offer some distinct advantages that should help it deliver in a global economic downturn. First, the company's contracts help insulate it from a recession since it uses cost-plus or open-book contracts for about half of its business, which means the prices it charges are based on its own costs so it can pass along higher fuel prices or wage increases.

And pricing is based on long-term contracts, not spot rates, as is common in the trucking industry. GXO also uses minimum volume guarantees, meaning its customers are obligated to ship a certain volume of goods or pay the difference. That will put a floor on GXO's revenue even in the event of a sharp downturn.

Lastly, customers outsource their logistics operations to GXO in part to save money, meaning it can recruit new customers in a downturn, and its free cash flow is countercyclical. The company plans to spend about 2% of its revenue on capital expenditures for growth, so if revenue growth slows, GXO will scale back on cap ex, giving a lift to its free cash flow.

Why it's a buy

As the leading pure-play contract logistics company, GXO has a number of competitive advantages, including a geographical footprint with nearly 1,000 facilities in North America and Europe, a mergers and acquisitions strategy in a highly fragmented industry, and investments in technology -- one of the most attractive features for customers.

In fact, the company just said that tech deployments this year were up more than 50% from 2021, which include collaborative robots, vision scanners, and automated guided vehicles.

GXO derives more than 30% of its revenue from automated facilities compared to just 5% for the industry as a whole, showing how its technology provides a key competitive advantage. That should only expand as automation technology gets better and customers demand more of it.

GXO is an industry leader growing at double digits that trades at a discount to the S&P 500. While a recession could slow its growth, it's not going to knock it off track. The logistics stock looks well positioned to outperform over the long term.