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Summary

  • The largest domestic truck broker with over 20% market share.
  • Excellent Shareholder Friendly Policy.
  • 12.9% 10-year CAGR on net revenue growth, 12.5% 10-year CAGR on income from operations growth, and 17.5% 10-year CAGR on diluted EPS from continuing operations growth.

Sometimes even great companies will be out of favor. This time I am talking about CH Robinson (NASDAQ:CHRW), which has a wide competitive moat. For long-term investors, the buying opportunity in CHRW is well worth your attention.

Company Description

CH Robinson is the largest domestic truck broker, with over 20% market share, providing freight transportation services and logistics solutions to companies in various industries worldwide. It offers transportation and logistics services, such as truckload comprising time-definite and expedited truck transportation services. It has locations in North America, Europe, South America and Asia. It was founded in 1905 and headquartered in Eden Prairie, Minnesota.

Excellent Shareholder Friendly Policy

The market value of CHRW is $7.58 billion, but it has already returned around $2.75 billion back to its shareholders through both dividends and share repurchases since 2009. In addition, CHRW has set targets to return approximately 90% of net incomes to shareholders.

(click to enlarge)Source: Company Presentation

Stellar Financial History

As we can see below, CHRW achieved 12.9% 10-year CAGR on net revenue growth, 12.5% 10-year CAGR on income from operations growth, and 17.5% 10-year CAGR on diluted EPS from continuing operations growth. Those are all outstanding achievements. It is no wonder that CHRW used to demand 23x PE to justify its values.

(click to enlarge)

Source: Company Presentation

Why CHRW plunged to 5-year low?

(click to enlarge)

Source: Yahoo Finance

CHRW has recently lowered its diluted EPS long-term growth target from 15% to 7-12%. In addition, the net operating margins fell from the peak of 44% to today's 37.5%, and the transportation net revenue margins fell from the peak of 22% to today's 14%. I admit that those are horrible numbers, but they have already been reflected in today's share price.

Valuations

I model CHRW with the depressed 37.5% operating margins, 14% transportation net revenue margins, and 5% sales growth. I still come up with a reasonable $2.85 EPS in 2014, which implies that CHRW trades at 17.89x PE as compared to its historical 23x PE.

Discounted Cash Flow "DCF" Model

Year 1Year 2Year 3Year 4Year 5Year 6
Sales$13,135$13,660$14,206$14,775$15,366$15,980
EBITDA$722$751$781$813$845$879
EBIT$709$738$767$798$830$863
Net Income$444$462$481$500$520$541
EBIT x (1 - Tax Rate)$436$454$472$491$510$531
+ Imputed Interest on Operating Leases$0$0$0$0$0$0
- Capital Expenditure$13$14$14$15$15$16
+ Depreciation & Amortization$13$14$14$15$15$16
- Change in Non-cash Working Capital-$20$11$11$11$12$12
Adjusted Free Cash Flow$456$443$461$479$498$518
FREE CASH FLOW (FCFF) VALUATION MODEL
Present Value of Free Cash Flow$1,821
Present Value of Terminal Value$7,066
Value of Operating Assets$8,888
Value of Cash, Marketable Securities & Non-operating assets$162
Value of the Firm$9,050
Value of Debt$503
Value of Common Equity$8,546
Value of Common Equity Per Share$57.57

With the Weighted Average Cost of Capital "WACC" of 8.8%, I find the intrinsic value of CHRW is $57.57 per share according to my DCF model.

The Bottom Line

As CHRW trades at 5-year low, I believe that most of the bad news has already been reflected in its current share price. Looking forward, CHRW should be able to meet its depressed financial targets and restore its credibility among its analysts and shareholders. For long-term investors, CHRW offers 13% potential upside, together with its healthy 2.7% dividend yield.

Disclaimer: I am not a securities broker/dealer or an investment adviser. You are responsible for your own investment decisions. All information contained should be independently verified with the companies mentioned, and readers should always conduct their own research and due diligence and consider obtaining professional advice before making any investment decision.

Source: CH Robinson: Invest In The Largest Domestic Truck Broker