On Wednesday, September 26, analysts at Wolfe Trahan upgraded shares of C.H. Robinson Worldwide (CHRW). The firm raised its rating on the stock from a Peer Perform to an Out Perform and did not set a price target. As a result of the upgrade, shares of CHRW reacted quite flat, closing up 0.03% at the close of trading on Wednesday. In the wake of the company's recent upgrade, I wanted to examine CHRW and highlight how it compares to some of its industry-based competitors within the Air Delivery & Freight sector in terms of profit and operating margin, and furthermore, in terms of recent acquisitions. The three companies within the sector that I chose to compare alongside C.H. Robinson Worldwide are Federal Express Corp. (FDX), United Parcel Service (UPS) and Expeditors International of Washington (EXPD).
As a whole, and in my opinion, the Air Delivery & Freight sector possesses some of the lower profit margins I've seen from a sector by sector standpoint. I wanted to demonstrate the fact that although C.H. Robinson Worldwide has a respectable profit margin over the last year and among its sector-based peers, it certainly has a ways to go before it can compete with companies like Federal Express, United Parcel Service and Expeditors International.
Let's begin by examining the operating margins of the four companies featured within the Air Delivery & Freight sector and highlight the fact that although C.H. Robinson is the laggard of the group, there is certainly room to grow in terms of operating margin. Over the last year, C.H. Robinson Worldwide has demonstrated an operating margin of just 6.54%, which was outpaced by Federal Express, Expeditors International, and United Parcel Service, which demonstrated operating margins of 7.59%, 9.57%, and 11.39%, respectively.
In the last 12 months, C.H. Robinson Worldwide has demonstrated a profit margin of just 4.13%, which was again outpaced by its three competitors: Federal Express, with a profit margin of 4.72%; Expeditors International, with a profit margin of 5.98%; and United Parcel Service, with a profit margin of 7.22%. CHRW has the ability to demonstrate a substantial increase in its domestic and international Air Delivery & Freight services, as well as its profit and operating margins, over the next 12-24 months, due largely to the recent acquisition of Phoenix International.
Why is this acquisition a key catalyst for the continued growth of CHRW? The Chicago Business Journal recently noted that, "Phoenix primarily provides international freight forwarding services, including ocean, air, and customs brokerage, serving about 15,000 customers globally. Phoenix has nearly 2,000 employees, located in 76 offices in 15 countries." With that said, Federal Express is also no stranger to the "Growth by Acquisition'" game, considering the fact the company has already made three key international acquisitions since January. FDX has managed to enhance its global footprint by acquiring Polish-based Opek SpZ, French-based TATEX, and Brazilian-based Rapido Cometa.
C. H. Robinson and Federal Express aren't the only two companies growing by acquisition in the euro region. United Parcel Service announced the acquisition of TNT Express in late March in a deal that was valued at $6.8 billion dollars, allowing UPS to surge past DHL as the largest provider of express shipping solutions in Europe.
Should potential investors consider a position in C.H. Robinson based on the company's recent strategy that is seemingly mimetic of its sector-based competitors? To survive among some of the biggest names within the Air Delivery & Freight sector, a company must possess a strong domestic and international presence, as well as the ability to grow by acquisition. The recent acquisition of Phoenix International does two things for C.H. Robinson. First, and from a fundamental perspective, it should be able to enhance the company's profit and operating margins over the next 12 months. Second, it enhances the company's global footprint, which will, in turn, enhance its bottom line over the 12-24 months.
Potential investors looking to establish a position in C.H. Robinson Worldwide should do so with a small to medium sized position, and add to that position as both earnings and dividend dates approach. A similar strategy should also be implemented if potential investors are looking to establish positions in either Federal Express or United Parcel Service.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.