The Company in a Nutshell
- The company provides freight transportation and logistics, outsource solutions, information services, and produce sourcing.
- CHRW has a network that provides access to 73,000 transportation providers worldwide.
- CHRW is the largest North American freight broker by estimated net revenues.
When we define a “strong business”, we often search for a company that dominates its’ market by its’ size and efficiency. We look for a leader that is present in multiple countries and serves various industries and clients. This is the summum of diversification. We also look for a company that thrives in a growing field. All those conditions seem reunited for CH Robinson Worldwide (CHRW). This logistic provider has developed a strong expertise in transporting goods from A to B regardless if it requires trucks, airplanes or ships. The company has moved fast over the past decade, is it too late to catch it?
C.H. Robinson Worldwide Inc is a non-asset-based third-party logistics provider. CHRW qualifies as an industrial dividend paying company. The company provides domestic freight brokerage services. It also operates a growing air and ocean forwarding unit and a legacy produce-sourcing operation. The company is all about being more efficient. This is definitely something investors like. CHRW counts over 15,000 employees worldwide serving over 120,000 customers. The bulk of its business (52%) comes from truck transportation logistics.
Source: CHRW investors presentation
While serving all industries through all transporting means, CHRW is well positioned to capture any growth coming from any sectors. As long as the economy grows, this company will take its’ share of the pie.Source: CHRW investors presentation
There is definitely a tailwind for freight brokers and CHRW is the largest of them. Through its’ size and network efficiency, C.H. Robinson will continue to dominate its’ market. The company not only grows its’ customer bases year after year, it also retains them forever. According to management, 91% of their customer relationships have been around for more than 10 years.
The main risk with CHRW remains if you are not a shareholder yet. The company has been on a roll due to strong economic tailwind and the hype around the stock makes it pricey. It would a good candidate for a major drop in the event of a market crash. As CHRW evolves in a fragmented market where brains and technology are more important than arms and size. Therefore, CHRW could face competition in areas it doesn’t suspect as technology evolves. This sector seems likely to get hit by a disruptive technology in the future. On the other side, it is highly possible that CHRW could develop this technology or simply make another acquisition to avoid fighting a rising competitor.
Dividend Growth Perspective
C.H. Robinson is now an aristocrat with more than 25 years of consecutive dividend increase. The company has a proven business model and grew its’ market shares significantly. Management desires to return wealth to shareholders is obvious. Therefore, you can expect a mid-single digit dividend growth rate going forward. CHRW will not let you down.
We understand that with a yield around 2%, C.H. Robinson will not attract income seeking investors. However, the combination of dividend growth and stock value appreciation potential is interesting for total return investors.
CHRW meets our 7 dividend growth investing principles.
When you look at a company showing such growth perspectives, you often get hurt when it’s time to talk about the price to pay for it. This is unfortunately the case for C.H. Robinson.
With a 12-month forward PE of 21.50, there is definitely no bargain when the price is close to $100.
When we used the dividend discount model, we expected a dividend growth rate of 5% which is slightly lower than the company’s last 5 year CAGR of 5.62%. We think the past 5 years could not have been better considering the state of the economy and we find it difficult to replicate such success for the next decades.
|Input Descriptions for 15-Cell Matrix||INPUTS|
|Enter Recent Annual Dividend Payment:||$1.84|
|Enter Expected Dividend Growth Rate Years 1-10:||5.00%|
|Enter Expected Terminal Dividend Growth Rate:||5.00%|
|Enter Discount Rate:||9.00%|
|Discount Rate (Horizontal)|
|Margin of Safety||8.00%||9.00%||10.00%|
Please read the Dividend Discount Model limitations to fully understand my calculations.
With an intrinsic value of around $50, there is absolutely no point in purchasing CHRW at $100 if you are an income seeking investor. The dividend growth perspective doesn’t justify its’ price. However, with the right combination of stock price appreciation and steady distribution growth, you may get a good investment if you pick-up some shares around $90.
At a time where globalization is not a trend, but an established reality, CHRW has become the expert of making transportation simple and efficient. We like the company’s client diversification by numbers (over 120K) and by sectors (21% in food & beverage, 15% in manufacturing, 15% in retail, 14% in auto/industrial, etc). 91% of their client relationships are active for over 10 years. The company enjoys size and scale to dominate the market with strong margins. This new Aristocrat (since 2017) has been quite generous with its’ shareholders, but the dividend growth isn’t strong enough to justify the current valuation. CHRW is to be added to your watchlist, but don’t buy it at any price.
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Disclaimer: CHRW is not in the Dividend Stocks Rock portfolios.
Featured image source: Pixabay