CH Robinson Worldwide Inc (CHRW)

Conclusion

C.H. Robinson Worldwide, Inc. is a freight brokerage and logistics company. It arranges truckload, less-than-truckload and intermodal transport, runs global forwarding and customs brokerage, and operates the Robinson Fresh produce business. At 128.99 USD a share, the market capitalisation is 14.96 billion USD.

The verdict is overvalued. Four of the five multiples sit above their own ten-year medians: EV/EBITDA at 17.87 against 15.14 (a premium of 18.1%), price to free cash flow at 29.56 against 24.29 (21.7%), price to book at 9.47 against 7.49 (26.4%) and price to sales at 0.82 against 0.72 (14.0%). Only the P/E, at 22.36 against 23.47, sits below its median, a discount of 4.7%. The DCF gives 48.83 USD per share at a discount rate of 9.63%. The fair value band runs from 62.20 to 93.30 USD with a midpoint of 77.75 USD, and the margin of safety is -39.7% at the price. The reverse DCF implies growth of 15.1% a year, while revenue has compounded at 0.0% over five years and free cash flow per share at 17.6%.

What holds the case up is free cash flow conversion of 113.0% over five years, eight earnings beats in eight quarters, and ROIC of 19.5% against a WACC of 8.9%. What would break it is revenue falling at a compound rate of 13.1% over three years, an operating margin of 4.9%, and net debt to EBITDA of 2.07.

Financial health

Financial strength is green, held up by an Altman Z-score of 6.75 and interest coverage of 9.40, while net debt to EBITDA of 2.07 is neutral. The current ratio is 1.34 and the quick ratio 1.31, both comfortable, and debt to equity is 1.36. The Altman Z-score of 6.75 falls in the safe zone, but the Altman model was designed for manufacturers, and this company is a logistics business, so the zone should be read with that in mind. Insolvency risk: low, about 0.75% by the estimate of the Ohlson model over one to two years.

Earnings quality

Earnings quality is green, supported by free cash flow conversion of 113.0% over five years and a share count that fell at a compound rate of 2.25% over five years, which points to buybacks. Trailing conversion is lower at 75.6%. The accrual ratio is -6.3%, a sign that cash earnings exceed reported earnings. Stock-based compensation is 0.54% of revenue, leaving free cash flow after it at 407.8 million USD. The Piotroski score is 6 of 9. The Beneish M-score is not available. The company beat earnings estimates in all eight of the last quarters, with an average surprise of 8.5%. Current-year estimates rose 2.2% over 90 days, with 17 upward and 3 downward revisions in the last 30 days, while next-year estimates eased 0.3%.

Profitability

Profitability is yellow. The gross margin of 11.9% is well above its ten-year median of 7.8%, while the operating margin of 4.9% is close to its median of 5.0%, and the net margin of 3.7% is close to its median of 3.6%. The key result is ROIC of 19.5% against a WACC of 8.9%, a ROIC minus WACC value of 10.6%, which creates value. The five-year median ROIC is 19.3%. The DuPont split shows a net margin of 3.6%, an asset turnover of 3.21 and an equity multiplier of 2.74. The return on equity of 42.4% therefore rests heavily on asset turnover and leverage rather than on margin.

Growth

Growth is yellow. Revenue has a three-year compound growth rate of -13.1%, a five-year rate of 0.0% and a ten-year rate of 1.9%. Earnings per share show -13.2% over three years, 5.4% over five and 3.3% over ten. Free cash flow per share shows -14.9% over three years, 17.6% over five and 4.7% over ten. Revenue grew in 6 of the last 10 years. Analysts expect earnings per share to grow 17.4% next year, which would reverse the recent decline if delivered.

Valuation

Valuation is red. Today's multiples sit above their ten-year medians on four of five measures, as set out in the Conclusion. The DCF gives 48.83 USD per share, with a discount rate of 9.63% and a terminal value share of 50.7%. The fair value from historical multiples is 106.67 USD. The fair value band is 62.20 to 93.30 USD, with a midpoint of 77.75 USD and a margin of safety of -39.7%. The reverse DCF implies growth of 15.1% against revenue growth of 0.0% over five years. The fair value is an order of magnitude built on fixed assumptions, including a 5% equity risk premium and capped growth. It is not a price target. The dividend yield is 2.03%, with a payout of 60.0% of free cash flow.

Risks

The weakest numbers are the three-year revenue decline of 13.1%, the operating margin of 4.9%, and net debt to EBITDA of 2.07. A continued fall in revenue would weaken the free cash flow base on which the DCF rests. A thin margin leaves little room for cost pressure, and the leverage would weigh more if earnings fell. The DCF is sensitive to its inputs, and half of its value (50.7%) comes from the terminal value. The Beneish M-score is not available. This analysis has no debt maturity schedule and no revenue breakdown by segment, so refinancing risk and the source of growth cannot be checked here.