On Aug 23, 2013, we upgraded third-party logistics company, C.H. Robinson Worldwide, Inc. (CHRW), to Neutral from Underperform.
Why the Upgrade?
We believe that the company’s diverse customer base, advanced technology and service levels, and brand value will help in winning market share over the long term. The company will gain through investments in complementary businesses like ocean, air and customs.
Detailed Analysis
C.H. Robinson is considered to be among the first-in-class third-party logistics (3PL) companies given its consistent growth rate in the past few years. The demand for 3PL services is rapidly growing as shippers seek cost-effective one-stop solutions for their freight forwarding requirements. Given the company’s advanced technology and service capabilities, we believe it is poised to capture a significant share in the current freight transportation market.
The acquisition of Phoenix is expected to expand the company’s global footprint in forwarding services in both ocean and air transportation categories along with custom brokerage. The company also acquired Poland-based freight forwarder – Apreo Logistics S.A – that mostly compliments its trucking business with dry van, temperature controlled as well as liquid and dry bulk capabilities. The acquisitions are expected to expose C.H. Robinson to higher growth markets.
C.H. Robinson continues to have a strong balance sheet with significant liquidity. The company also remains focused on increasing shareholders’ wealth by regular payments of dividends and share repurchases. We believe that increased returns strengthen shareholders’ confidence in the company.
Nevertheless, we prefer to stay on the sidelines as a competitive freight market, declining truckload market share and limited margin expansion opportunities pose as near-term headwinds.
Further, the higher personnel expenses given the rise in headcount and the increased integration cost associated with the Phoenix acquisition will hinder the company’s growth. Hence, the company is expected to perform at par with the broader industry and we advise investors to hold on to the stock.
C. H. Robinson currently carries a Zacks Rank #4 (Sell).
Stocks That Warrant a Look
Other Stocks that are worth considering within this sector are American Railcar Industries Inc. (ARII), Expeditors International of Washington Inc. (EXPD) and Con-Way Inc. (CNW). All the stocks currently hold a Zacks Rank #2 (Buy).
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