In this article, let's take a look at CH Robinson Worldwide Inc. (CHRW, Financial), a $10.64 billion market cap company that is a global provider of multimodal transportation and logistics solutions and has a network of more than 230 offices in North America, South America, Europe and Asia.
Business model
The company is a leader in the U.S. freight brokerage market. With an interesting business model, which is characterized by its variable-cost model, it can survive even in periods of low freight demand. It has a variable compensation because a great part of operating expenses is tied to performance-based.
Market share
We believe that the market share has benefits now and in the long term. Some statistics indicate that Robinson's stake of the domestic fright brokerage industry increased to more than 20% from about 13% 10 years before.
Robinson is also positioning its international air and ocean forwarding operations to contribute to growth.
Air and ocean business
In 2012, it acquired Phoenix International in search of having more scale and, of course, a revenue expansion. We must mention that the airfreight markets have been recovering since 2013, and this should benefit the firm in the coming years.
Revenues, margins and profitability
Looking at profitability, revenue grew by 4.54% and led earnings per share increased in the most recent quarter compared to the same quarter a year ago ($0.85vs $0.69).
The net income increased by 16% when compared to the same quarter one year prior, from $107.74 million to $124.98 million.
Finally, let´s compare the best measure of performance for a firm's management: the return on equity. The ROE is useful for comparing the profitability of a company to that of other firms in the same industry.
| Ticker | Company | ROE (%) |
| CHRW | CH Robinson Worldwide | 43.5 |
| UPS | United Parcel Service Inc | 67.97 |
| XPO | XPO Logistics Inc. | -7.16 |
| FDX | FedEx Corp | 13.7 |
| ECHO | Echo Global Logistics Inc | 9.07 |
| Â | Industry Median | 7.96 |
The company has a current ROE of 43.5% which is higher than the industry median and the one exhibited by FedEx (FDX, Financial), Echo Global (ECHO, Financial) and XPO Logistics (XPO, Financial). In general, analysts consider ROE ratios in the 15-20% range as representing attractive levels for investment. So for investors looking for those levels or more, United Parcel Service (UPS, Financial) could be the option. It is very important to understand this metric before investing, and it is important to look at the trend in ROE over time.
Relative Valuation
In terms of valuation, the stock sells at a trailing P/E of 25.1x, trading at a discount compared to an average of 26.2x for the industry. To use another metric, its price-to-book ratio of 10.5x indicates a premium versus the industry average of 1.41x while the price-to-sales ratio of 0.8x is below the industry average of 1.14x.
As we can see in the next chart, the stock price has an upward trend in the five-year period. If you had invested $10,000 five years ago, today you could have $14,627, which represents a7.9% compound annual growth rate (CAGR).
The company's shares rose by a sharp 27.81% over the past year, a rise that has exceeded that of the S&P 500 Index.
Final comment
As outlined in the article, the company has increased its share of the brokerage industry. A good market share gains and as a consequence good profitability might attract investors to bet on this stock. Moreover, the PE relative valuation and the return on equity that significantly exceeds the industry average make me feel bullish on this stock.
Hedge fund gurus like John Hussman (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Steven Cohen (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio) have added this stock to their portfolios in the second quarter of 2014.
Disclosure: Omar Venerio holds no position in any stocks mentioned
