Will CH Robinson Stock Rebound To Its Pre-Inflation Shock Highs Of $120?

CH Robinson stock (NASDAQ
NDAQ
: CHRW), a freight transportation company, currently trades at $86 per share, 11% below the level seen in March 2021, and it has room for growth, in our view. CHRW stock was trading at around $101 in early June 2022, just before the Fed started increasing rates, and is now 15% below that level, compared to 13% gains for the S&P 500 during this period. The recent stock decline is partly attributed to price erosion and the soft freight market.

Interestingly, CHRW stock has had a Sharpe Ratio of 0.1 since early 2017, lower than 0.5 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.2 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.

Returning to the pre-inflation shock high of over $120 (seen in Aug 2022) means that CHRW stock will have to gain 40% from here, and we don’t think it will materialize anytime soon. That said, CHRW stock currently trades at 0.5x revenues, slightly below its last five-year average of 0.6x, and it appears to have some room for growth. Our CH Robinson Worldwide Valuation Ratios Comparison dashboard has more details.

Our detailed analysis of CH Robinson Worldwide’s upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen over 2022. It compares these trends to the stock’s performance during the 2008 recession.

2022 Inflation Shock

Timeline of Inflation Shock So Far:

• 2020 – early 2021: Increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers unable to match up.
• Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt supply.
• April 2021: Inflation rates cross 4% and increase rapidly.
• Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process.
• June 2022: Inflation levels peak at 9% – the highest level in 40 years. The S&P 500 index declined more than 20% from peak levels.
• July – September 2022: Fed hikes interest rates aggressively – resulting in an initial recovery in the S&P 500 followed by another sharp decline.
• October 2022 – July 2023: Fed continues rate hike process; improving market sentiments helps S&P500 recoup some of its losses.
• Since August 2023: Fed has kept interest rates unchanged to quell fears of a recession, although another rate hike remains in the cards.

In contrast, here’s how CHRW stock and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

• 10/1/2007: Approximate pre-crisis peak in S&P 500 index
• 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
• 3/1/2009: Approximate bottoming out of S&P 500 index
• 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

CH Robinson and S&P 500 Performance During 2007-08 Crisis

CHRW stock declined from nearly $55 in September 2007 (pre-crisis peak) to $41 in March 2009 (as the markets bottomed out), implying it lost 25% of its pre-crisis value. It recovered after the 2008 crisis to levels of around $59 in early 2010, rising 42% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.

CH Robinson’s Fundamentals Over Recent Years

CH Robinson Worldwide’s revenue increased from $15.3 billion in 2020 to $24.7 billion in 2022, led by the company’s Global Forwarding segment, which includes ocean freight services, air freight services, and customs brokerage. The company’s revenue growth has been bolstered by Space Cargo and Dema Service acquisitions in 2019 and Prime Distribution Services in 2020, and Combinex in 2021. The company saw a surge in demand post-pandemic, and price increases also aided its top-line growth. However, this trend has now cooled off. Lower ocean and truckload pricing has weighed on its top line in the first half of 2023. CH Robinson’s operating margin decreased from 4.8% in 2019 to 3.2% now, partly due to higher SG&A expenses. The company’s earnings stood at $7.48 on a per-share and reported basis in 2022, compared to the $4.21 figure in 2019.

Does CH Robinson Have A Sufficient Cash Cushion To Meet Its Obligations Through The Ongoing Inflation Shock?

CH Robinson’s debt increased from $1.2 billion in 2019 to $1.7 billion now, while its cash decreased from $448 million to $210 million over the same period. The company also garnered $1.9 billion in cash flows from operations in the last twelve months. Given its cash cushion, the company appears well-positioned to service its near-term obligations.

Conclusion

With the Fed’s efforts to tame runaway inflation rates helping market sentiment, we believe CHRW stock has the potential for more gains once fears of a potential recession are allayed. That said, unfavorable macroeconomic factors and falling ocean freight and truckload prices are potential risk factors for realizing these gains.

While CHRW stock can see higher levels, it is helpful to see how CH Robinson Worldwide’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

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