C.H. Robinson Worldwide: Take The Long Way Home

By Will Ashworth | January 31, 2012 AAA
Third party logistics provider C.H. Robinson Worldwide (Nasdaq:CHRW) announced fourth quarter earnings January 31.They were a mixed bag with revenues increasing 10.4% to $2.57 billion year over year with earnings per share of 62 cents, up 8.1% from the fourth quarter of 2010. Revenues missed the Zacks consensus estimate by $50 million and earnings per share missed by a penny. As a result, its stock was down almost 7% February 1 in early trading. Within 3% of a 52-week low, now is the time for investors to make a move. Long-term, C.H. Robinson Worldwide will make you money. Here's why.

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Consistent Profitability

Despite missing the consensus estimate for the fourth quarter, it still managed to generate $2.65 in earnings per share in 2011, a 13.7% increase over 2010. The company has increased earnings in each of the last 10 years and on only one occasion, in 2009, did revenues decline. It's the model of consistency. It's for this reason investors shouldn't have a problem with an enterprise value 14 times earnings before interest, taxes, depreciation and amortization (EBITDA). On Jul. 7, 2011, when its stock hit a 52-week high of $82.61, investors were willing to pay the equivalent of 20 times EBITDA. On this basis, six months has passed with earnings and revenues increasing, yet investors are now able to buy its stock for 25% less. That sounds like a sale to me.

Good Things Happening

The economy isn't great. However, that hasn't stopped C.H. Robinson from continuing to grow. In 2011, it added approximately 1,000 active customers from the year before and made 10 million shipments, up from 9.2 million in 2010. Since 2001, its fourth quarter transportation margin has averaged 17%. In the fourth quarter of 2011, it was 16.3%, the third year in a row with a declining margin and only 60 basis points away from its lowest fourth quarter margin, achieved in 2005. Yet, when you bring all the segments together, its operating margin remained the same as in 2010 at 42.4%. That's 52% higher than where it was in 1996. In that 15-year period, it's increased operating margins and diluted earnings per share 19.1% annually.

Disciplined at controlling costs, its free cash flow improved 19% in 2011 to $377 million. With that free cash flow it repurchased 3.54 million shares at an average cost of $69.75 a share. That's $2.71 less than its average trading price in 2011 of $72.46 a share. I'm not a fan of share repurchases, but as long as they're not buying near the high, I can live with them. With almost $400 million in cash finishing the year, I'm sure there will be more in 2012. (To know more about income statements, read Understanding The Income Statement.)

C.H. Robinson Worldwide and Its Peers

Company

EV/EBITDA

C.H. Robinson Worldwide

14.02

United Parcel Service (NYSE:UPS)

9.76

FedEx (NYSE:FDX)

5.92

Expeditors International of Washington (Nasdaq:EXPD)

12.23

UTi Worldwide (Nasdaq:UTIW)

7.87

The Next Few Quarters

As of January 30, its 2012 North American Truckload volume's grown by 7% per business day and net revenue growth per business day by 6%. It might not be perfect, but it's pretty darn close. C.H. Robinson's sourcing business lost a large customer the 2011, and as a result, the first couple of quarters in 2012 will have difficult comparisons. Longer-term, its growth prospects for its sourcing business appear excellent. Other than that, it's business as usual for the Minneapolis company. Analysts estimate 2012 earnings per share of $2.97 and $3.36 in 2013. That's a 13.1% annual growth, which is less than its 15-year average, but higher than the average for the past five years. As the profit cycle moves higher and the economy improves, look for a nearly 20% growth in 2013 or the year after.

The Bottom Line

Looking at the table above, it would be easy to view C.H. Robinson Worldwide's stock expensive. Long-term, you'd be mistaken. It's going take the long way home. (For additional reading, check out 5 Must-Have Metrics For Value Investors.)

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At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this articles.

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