C.H. Robinson Is A Gift Near Its 52-Week Low (NASDAQ:CHRW)

C.H. Robinson Worldwide (NASDAQ:CHRW) has seen its share of ups and downs over the past year, and at present, is trading far closer to its 52-week low than its high. As shown below, the stock is now well below its high of $120 achieved as recently as August of last year.

That’s good news for value investors, as getting a good starting valuation on a high quality stock is one of the biggest catalysts for total returns. In this article, I highlight why CHRW is a worthy stock to consider at current levels.

Why CHRW?

C.H. Robinson Worldwide is a leading third-party logistics provider that offers transportation, logistics, and supply chain management services to companies around the globe. The company has a broad range of services, including transportation brokerage, freight forwarding, customs brokerage, warehousing, and packaging.

As shown below, CHRW has seen a fairly straightforward revenue trajectory over the past decade, with a significant ramp up over the past 3 years.

CHRW is the biggest player in the asset-light highway brokerage market with a growing market share that currently sits at 18%. This business is highly fragmented, and CHRW benefits from its process efficiencies and automation, which keeps it a step ahead of smaller players. This is reflected by CHRW’s global network of over 115,000 carriers, allowing it offer its customers a wide range of transportation options, including truckload, less-than-truckload, intermodal, air, and ocean.

In recent years, CHRW has been focusing on expanding its digital capabilities to enhance the customer experience and improve operational efficiency. The company has invested in technologies such as artificial intelligence, machine learning, and predictive analytics to better manage its supply chain and logistics networks. In addition, CHRW has been expanding its presence in key global markets, such as Asia and Europe, to better serve its customers’ needs.

Meanwhile, CHRW is seeing a challenging operating environment, driven by weakness in the retail market and a slowdown in the housing market due to higher mortgage rates in 2022 compared to the prior year. This is reflected by income from operations declining by 7.5% YoY to $288 million during the third quarter.

Adding fuel to the fire, CHRW is currently without a permanent CEO, as the last one was involuntarily terminated without cause. Speculating on potential reasons for the departure, one could be that the company had expanded too aggressively during the good times, as additional headcount drove operating expenses higher by 15% to $1.7 billion in the last reported quarter. These factors add a bit of near-term uncertainty to the mix.

Nonetheless, I see the long-term growth thesis as being intact, as CHRW is well positioned to benefit from the ongoing e-commerce and global trade trends. This is supported by its industry-leading network of carriers that should remain valuable to shippers. Plus, The company’s investments in technology should give it a competitive advantage over its fragmented market, as noted by management during the last conference call:

For the enterprise, we continue to believe that through combining our digital solutions with our global network of logistics experts and our full suite of multimodal services, we are uniquely positioned in the marketplace to deliver for our shippers and carriers regardless of market conditions. We believe our strategy and competitive advantages will enable us to create more value for customers and in turn, win more business, increase our market share and enable sustainable profitable growth.

Importantly, CHRW carries a strong BBB+ rated balance sheet and pays a 2.6% dividend yield that’s well covered by a 27% payout ratio. It’s also a dividend aristocrat and its most recent 11% dividend raise was in November of last year. As shown below, CHRW scores A and B grades for dividend safety, growth, yield, and consistency.

It’s also worth noting that CHRW returns capital to shareholders through share buybacks. As shown below, CHRW has retired 19% of its outstanding float over the past decade.

Turning to valuation, CHRW appears to be attractive at the current price of $93 with a forward PE of 11.9, sitting well under its normal PE of 20.4. While analysts do expect an EPS decline of 32% this year, they expect a rebound in earnings next year and thereafter with 8% to 23% annual EPS growth. As such, it appears that the headwinds are already baked into the current share price.

Investor Takeaway

CHRW remains well positioned to benefit from the long-term trends in global trade and e-commerce, given its wide network of carriers and investments in digital capabilities. There are some near-term uncertainties due to the lack of a permanent CEO at the moment and an uncertain housing market, but the current valuation appears to already price in these headwinds. As such, I believe CHRW is a worthy long-term addition at current levels as it may emerge out of the current downcycle in a stronger position than before.