At a 52-Week Low, Is C.H. Robinson Now a Buy?
Shares of C.H. Robinson Worldwide (NAS: CHRW) hit a 52-week low on Friday. Let's take a look at how it got there and see if cloudy skies are still in the forecast.
How it got here
C.H. Robinson Worldwide, a logistics company that arranges the transportation of goods for 37,000 customers, has dragged investors through two consecutive lackluster quarters relative to Wall Street's expectations, and the stock finds itself at new lows because of it.
The primary concern for the company is the rising cost of fuel, which has negatively affected its pricing power. The company admitted in its recent earnings report that higher fuel costs are currently outpacing its ability to pass along price increases to its customers. Both its airline and trucking segments suffered from this so-called fuel pinch.
The other concern here is that despite the company's EPS growth, the second quarter marked the first time in six quarters that revenue growth was not in the double digits. That's still remarkable given how weak the global economy is, but it has investors concerned that its growth may be tapering off.
On the other hand, there's plenty of evidence to suggest that shipping volumes should remain healthy and C.H. Robinson should be able to maintain its pricing power. Both FedEx (NYS: FDX) and United Parcel Service (NYS: UPS) reported solid growth in their most recent quarters. UPS' latest report exhibited an earnings miss, but I'd point out instead that operating margins expanded, EPS increased by 10%, and consolidated volume gained 4.3%. FedEx crushed estimates with revenue rising 9% and earnings climbing 126%.
How it stacks up
Let's see how C.H. Robinson stacks up next to its peers.
If you're curious to know J.B. Hunt Transport Services' (NAS: JBHT) secret, it's as simple as having strong pricing power and being able to pass along the rising costs of fuel to its customers. That's the difference between big gains and hovering around the flat line.
|C.H. Robinson Worldwide||7.4||20.6||17.3||8.0%|
|United Parcel Service||9.5||8.9||13.3||9.3%|
|J.B. Hunt Transport Services||10.2||10.2||17.9||10.6%|
|Expeditors International of Washington (NAS: EXPD)||3.8||18.8||17.8||9.3%|
The first thing to note is that all four of these companies have grown EPS at double or more the average of their sector over the past three years. Their sheer size gives them a good share of pricing power, which allows them to help negate rising labor and fuel costs.
That wasn't enough to save Expeditors International of Washington, which recently warned that its earnings were not going to be up to Wall Street's expectations. Its ocean and air freight business volumes are down and affect its margins negatively.
As I alluded to above, J.B. Hunt has performed very well of late. Its latest quarter highlighted the continued use of fuel surcharges to counter rising costs, boosting its EPS by 42.5%. Pricing power is everything in the transportation sector, if I haven't drummed that in enough.
Overall, none of these four looks particular cheap using the above metrics, but each can offer its own unique value as long as they continue to outperform their peers.
Now for the $64,000 question: What's next for C.H. Robinson Worldwide? That answer is going to depend on (ding, ding, ding: You guessed it) whether it can pass along its rising costs to customers and control its expenses in the process.
Our very own CAPS community gives the company a two-star rating (out of five), with 82.7% of members who've rated it expecting it to outperform. I, too, have made a CAPScall of outperform on C.H. Robinson and am currently down to the tune of six points on that call at the moment. My thesis on the company, however, remains unchanged.
The main reason I prefer C.H. Robinson over its competitors is its ability to raise its prices throughout the years. Understandably, past performance is no guarantee of future results, but C.H. Robinson is still growing at a very rapid rate with strong growth noted in its payment services and other logistic services segments. Even the company's truck segment, which faced significant cost pressures, still saw a 7% rise in revenue in the latest quarter. With a 2.2% yield, I think you'll struggle to find a better value in the transportation logistics sector.
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At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of Expeditors International of Washington. Motley Fool newsletter services have recommended buying shares of FedEx. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.