CH Robinson Worldwide Inc. (NASDAQ:CHRW) is one of the largest U.S. third-party logistics companies. It provides freight transportation services and logistics solutions to over 40,000 shippers from a variety of industries. The company suits customers’ freight needs through 53,000 asset-based transportation companies including motor carriers, railroads, air and ocean freights. Transportation accounts for 92% of the firm’s revenues. Additionally, the company provides sourcing services of fresh produce to food-related businesses, and payment services such as fund transfer, fuel payment and fuel card services to fuel distributors and carrier companies.
CH operates more than 250 offices in the U.S., South America, Europe and Asia. Its non-asset based business model provides the company with more earnings flexibility, since 75% of operating expenses are performance-based. This has allowed outstanding returns on capital of over 30% during the last decade, as well as strong earnings growth.
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- CHRW 15-Year Financial Data
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A Huge Network
CH boasts immense buying power derived from a strong customer base. This allows the firm to offer capacity at lower rates, generating cost savings for customers, who in turn benefit from converting fixed transportation costs into variable costs by outsourcing its logistics.
On the other hand, the firm’s proprietary IT platforms are a key differentiator that enables it to gain more market share, given the increasing complexity of supply chains. Its robust technology infrastructure and large reservoir of market data, enhance internal pricing decisions and customers’ connectivity. Furthermore, switching costs can arise for customers when CH’s systems integrate with theirs.
Market statistics firm Armstrong & Associates indicates CH Robisnon´s market share of the domestic freight brokerage industry increased to 22% in 2012 from 13% in 2004. This trend is likely to persist given the company’s strong competitive advantage stemming from its hard-to-replicate huge capacity access, informational know-how and multimodal expertise.
In addition, the shrinkage of the domestic truckload industry, due to incremental government regulations increasing its operational costs and poor credit availability, further enhances CH’s market positioning.
As for its international operations, the company acquired Phoenix International and Poland-based freight forwarder Apreo Logistics S.A. at the end of 2012. Consequently, its international air and ocean forwarding operations increased, presently accounting for 14% total net revenues, which almost doubles former results. In the face of an increasing demand for multimodal solutions, CH’s growing capabilities generate a compelling value proposition that optimizes shippers’ rising focus on supply chain efficiency.
Furthermore, the company continues to expand its business in Europe where logistics demand is rising and there is lack of service capabilities in the truck industry. Hence, it recently opened new offices in Istanbul, Basel and two offices in Eastern Europe. Moreover, the firm has also partnered with Green Giant, a brand by General Mills Inc. (NYSE:GIS), to ship its new avocado product line, which poses a bulk shipment opportunity for the firm.
A Strong Balance Sheet
A compelling value proposition and strong capabilities support CH’S long-term targets of 15% earnings growth and its 20billion revenue over a decade, from organic growth.
CH Robinson has a strong balance sheet and remains focused on increasing shareholders’ value through regular dividend payments and share repurchases. In fact, the company has paid increasing dividends over the last 26 years and continues to enter share repurchase programs, thus strengthening shareholders’ confidence in the company.
CH’S stocks trade at 14.80 its trailing earnings compared to the industry median of 16.60. And its return on capital showcases an awesome 106.6% compared to its peers’ 7.30% average. Investment guru Joel Greenblatt (Trades, Portfolio) recently increased his holdings by 286% in accordance with my bullish feeling about CH Robinson’s powerful growth potential.
Disclosure: Vanina Egea holds no position in any stock mentioned.