News & Our Thinking

(Barron’s)

“After the Great Recession, you could get a truck anywhere, it was such a slow recovery,” says John Meara, president and chief investment officer of Argent Capital Management, which holds Robinson shares (ticker: CHRW).

March 16, 2015 (Robin Goldwyn Blumenthal)

JUST IN CASE YOU MISSED IT, 2014 was a banner year for logistics. In particular, freight brokers, who arrange to ship goods over different modes of transportation, generated their best performance since the recession began, according to the Council of Supply Chain Management Professionals. That’s a bullish sign for the U.S.’s largest truck broker, Eden Prairie, Minn.-based C.H. Robinson Worldwide.

“After the Great Recession, you could get a truck anywhere, it was such a slow recovery,” says John Meara, president and chief investment officer of Argent Capital Management, which holds Robinson shares (ticker: CHRW). But with a pickup in the economy and a frigid winter, 2014 saw “way more demand than capacity, especially in the first half,” says Jack Atkins, a Stephens analyst who is Overweight the stock. A driver shortage has been a big problem for trucking, but it’s an opportunity for companies like Robinson, which matches more than 46,000 customers worldwide with 63,000 transportation providers, including trucks, railroads, airlines, and ships. “These brokers thrive in a tight-capacity environment,” says Atkins, where pricing power increases as volumes grow.

Several impending regulatory changes should feed this need for freight brokers, especially in trucking. Before the end of 2015, federal hours-of-service rules take effect, which for safety reasons will require truck drivers to spend 34 consecutive hours each week off the road. Another change: electronic logging devices to ensure that truckers don’t cheat on hours of service. “Taking a significant amount of capacity out of the market sets up Robinson to really succeed over the long term,” says Atkins.

“As long as there’s increased complexity and variability, that should help logistics companies,” says Meara, adding that Robinson went from trading at twice the market multiple in 2011 to a current 10% premium. The shares, at a recent $73.41, are at a multiple of 20 times next year’s estimated earnings of $3.76 a share. Meara assumes $4.50 a share in earnings over the next few years and a multiple of 25, close to the historical average, which gets Robinson to a share price of $112, more than 50% higher than the current price.

Robinson was founded 110 years ago by Charles Henry Robinson as a wholesale produce brokerage, which is still a contributor to its $13.5 billion 2014 revenue, though a small one. Some 70% of net revenue comes from truckload — a $50 billion market — and less-than-truckload brokerage. Robinson also traffics in intermodal (two or more forms of transportation) markets, as well as ocean and air-freight forwarding, and in 2012 beefed up international forwarding with its purchase of Phoenix International, which Atkins says is just beginning to produce cross-selling. There’s room for growth. Of its 281 branch offices around the world, 65% are in North America, 18% are in Europe, and 14% are in Asia.

With a market capitalization of $10.8 billion, Robinson dwarfs its next-largest competitors, XPO Logistics (XPO) and Landstar System (LSTR). As the dominant player in a consolidating industry, Robinson is in a position to capture a significant share of business.

In an interview,CEO and Chairman John Wiehoff is upbeat. “The longer-term secular trends that have been good for us will continue to be good for us,” he says. Despite the oil-price plunge, which complicates pricing negotiations between shippers and customers, he is hopeful Robinson this year can meet its long-term target of double-digit earnings-per-share growth, which it achieved last year when it earned $449.7 million, or $3.05 a share, a 15% increase.

The company has beaten Wall Street estimates for four consecutive quarters, after falling short in the previous nine. On the fourth-quarter earnings call, Wiehoff, who has been CEO since 2002 and is still only 53, said 2015 was “off to a great start” from a revenue standpoint.

Wiehoff wants to improve Robinson’s network efficiency and bolster its global presence. “There’s a great opportunity for us to continue to expand globally and to focus on forwarding in some significant trade lanes,” he said. Last year, after three flat years, Robinson was able to raise prices. This year, Wiehoff expects a return to more balanced price and volume growth.

Third-party logistics is a technology-intensive business. Robinson recently acquired Freightquote.com, one of the largest online freight brokerages in the U.S., which will help it expand among smaller customers. Robinson is also expanding into managed services, working with customers on all of their freight needs, Wiehoff says.  Robinson has opportunities to grow in a fragmented market, both organically and through mergers and acquisitions. It’s not unreasonable, Meara says, for it to nearly double revenue in five years, to $25 billion, though Wiehoff thinks seven years is likelier. With a clean balance sheet and $1.1 billion of debt, Robinson can do complementary acquisitions, especially intermodal brokerage, says Atkins. That should allow it to keep trucking.