Starting this week GuruFocus will highlight one company a week from Buffett-Munger Screener. This week we focus on CHRW.
Company Name: C.H. Robinson Worldwide Inc
Market Cap: $12.62 billion
Business Predictability: 5 STARS
Industry: Air Delivery & Freight Services
C.H. Robinson Worldwide, Inc. (C.H. Robinson) is a third party logistics company. It provides freight transportation services and logistics solutions to companies of all sizes, in a variety of industries. During the year ended December 31, 2009, C.H. Robinson handled approximately 7.5 million shipments for more than 35,000 customers. It operates through a network of 235 offices, which it calls branches, in North America, Europe, Asia, South America, Australia, and the Middle East. It has developed global multimodal transportation and distribution networks to provide logistics services worldwide. C.H. Robinson does not own the transportation equipment that is used to transport its customers’ freight. Through its contractual relationships with approximately 47,000 transportation companies, including motor carriers, railroads (primarily intermodal service providers), air freight and ocean carriers, it selects and hires the appropriate transportation to meet its customers’ freight needs.
C.H. Robinson is a great example of how business innovation can increase economic productivity and create a wonderful, wealth creating business model. CHRW is in the transportation business, but unlike the typical transports, this company produces extraordinary economic profits. Furthermore, in addition to producing bottom line profits, the business throws of a tremendous amount of cash flow year after year. Below is the past five year’s statement of cash flows;
|Period End Date||12/31/2009||12/31/2008||12/31/2007||12/31/2006||12/31/2005|
|Net Income/Starting Line||360.83||359.18||324.26||266.93||203.36|
|Changes in Working Capital||-56.35||18.9||-79.34||6.95||-34.74|
|Cash from Operating Activities||372.57||447.58||308.43||343.38||224.11|
Notice the large amount of consistent free cash flow (CFO minus capital expenditures). This is very unusual for a transportation company. But CHRW is really a logistics company rather than transport. A normal transport such as trucking or railroad companies will own the trucks and rail cars. This leads to a very ‘asset heavy’ capital structure. It also requires a great deal more capital expenditures to maintain and build out its fleet. CHRW, on the other hand, is considered to be ‘asset light’ simply because it doesn’t own these assets. Rather, the company arranges logistic support acting as an intermediary between the shipper and the hauler. They enjoy a wonderful competitive advantage due scale, advanced database network, and strong relationships. Customers (specifically for small operators) pay for the increased efficiency for their shipping requirements. The efficiency savings for its customers more than offsets the fees charged. This increased ROI creates a compelling service offer for CHRW. The result is a company with superior profitability and cash flow. The business predictability of earnings is incredibly high with a five star ranking. As the global economy expands with international trade, the need for their services will grow as well.
Ratios – P/E (ttm) 32.6X
Discounted Cash Flow Analysis – The market is currently placing a hefty premium on CHRW due to its above average consistency. Given current profit expectations and capital structure, the market is pricing in +20% growth over the next 10 years to justify its current share price – a very difficult hurdle.
BV/ Share ROE ROA
C.H. Robinson Worldwide, Inc. (“C.H. Robinson”) (NASDAQ:CHRW), will hold its quarterly conference call to discuss fourth quarter 2010 results on Tuesday, February 1, 2011, at 5:00 p.m.
- C.H. Robinson Worldwide, Inc. Increases Its Quarterly Cash Dividend
- Economic exposure / cyclicality
- Competitive pricing inputs
- Rising costs
The company’s future will depend on the growth of the global economy and the company’s ability to execute and provide superior service. Due to the firm’s significant moat, competitive threats will be minimized. CHRW is the largest domestic truck broker in the United States and gets almost 75% of its revenue from this source. In order to continue extraordinary growth, the company will need to be able to penetrate international markets. Therefore, the growth will be much more cyclical than in years past. Also, the company must be able to pass along rising costs such as fuel and tariffs. If unable to do so, profit margins will suffer. The shares are fully valued and pricing in success for the future. Any disruption to their growth and the valuation will contract.
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