by Lawrence Meyers | February 13, 2013 11:15 am
In my never-ending quest to find really boring companies that make a lot of money, because they’re often Peter Lynch plays, I’ve found a perfect candidate in C.H. Robinson Worldwide (NASDAQ:CHRW). What could be more boring than a company that provides transportation services and logistics? Don’t know what that means? Join the club.
Robinson is what’s known as a “non-asset based transportation provider”: It doesn’t actually own the equipment it uses to transport freight. Instead, it buys the capacity it needs on an as-needed (or “spot”) basis and does it through — get this — some 53,000 transportation companies globally.
In a business like this, however, just trucking stuff around isn’t enough. That’s where the logistics angle comes in. That includes stuff like analyzing the supply chain, consolidating freight and reporting.
This isn’t a fixed-cost business. Instead, Robinson actually trusts its employees to make decentralized decisions and compensates them based on how well they perform. The branches have all learned about their respective regions, they share information with other branches and consolidate transport as needed. Thus, the costs are variable, which is why that performance-based compensation comes in to play.
How wide and deep is Robinson’s network? Massive. It has 8,300 employees working with 37,000 customers — everything from mom-and-pops to Fortune 100 companies — with enough diversification that no one company makes up more than 3% of net revenues.
Robinson does one other logistical thing, which surprised me. It actually sources fresh produce. It buys, sells and markets the veggies on your plate. Robinson buys from suppliers and sells to everyone from grocery stores like Kroger (NYSE:KR), Safeway (NYSE:SWY), and Whole Foods (NASDAQ:WFM) to restaurant chains. And, of course, it usually transports that produce, also.
This is an incredibly complicated business to run. It depends on great top management, great local managers, detail-oriented logistics specialists and people who know how and where to source the best transportation.
From a macro perspective, Robinson makes it clear that the industry is dynamic. So, it doesn’t make forecasts about short-term expectations. If you buy into the industry, you’re buying into the macro picture, and that the company’s positioning is better than competitors. These include Expeditors International of Washington (NASDAQ:EXPD). As for market share, despite Robinson’s massive footprint, it handles only 2% to 3% of the North American truckload business.
Financially, it’s on solid footing. It has $210 million in cash and $253 million in debt. It doesn’t need to take on a ton of debt because it doesn’t actually purchase the transportation equipment. Robinson is strictly a service company. Consequently, it has little in the way of capital spending, and operating cash flow is very close to free cash flow (which was $355 million in the trailing 12 months).
This has allowed the company to continually raise its dividend every year since going public in 1997. Right now, that dividend is at 2.3%, and wouldn’t you know it, Robinson actually increased it every year during the financial crisis.
Growth is difficult to peg, but analysts see 12% annualized growth going forward. The company just reported quarterly earnings last week, with earnings up 5.3% for the full year, total revenue in the quarter up 15.7% and 9.9% for the full year. However, operating expenses were up 11% year-over-year. The company’s best segments right now are Ocean Transport and Air Transport, which saw gross profit grow 98% and 81% YOY, respectively.
That brings us to the one problem with this stock: it’s valuation. Even attaching a 15x multiple, Robinson’s 2013 earnings of $3.10 per share give it a fair value of $46. Right now, it trades right about $60. Ugh.
So while “backing up the truck” to load up on this stock isn’t a great idea right now, I’d wait for lower prices and then definitely consider hitching a ride.
As of this writing, Lawrence Meyers didn’t own any securities mentioned here.
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