C.H. Robinson Worldwide: I Was Wrong

Core Viewpoint - C.H. Robinson Worldwide's stock has seen significant gains despite an initial sell rating, with a 29% increase compared to a 5% gain for the S&P 500, prompting a reevaluation of the company's performance and future price targets [3]. Financial Performance - Total revenues for C.H. Robinson increased by 1.4% year-on-year to $4.5 billion, with transportation revenues rising by 0.9% and sourcing revenues by 7.2%. However, reported revenues fell short of analyst expectations by $40.6 million [4]. - Direct operating expenses grew by 1.1% to $3.81 billion, indicating margin expansion, while adjusted profit rose by 3.3% to $687.4 million, leading to core earnings of $1.15 per share, exceeding analyst expectations by $0.19 [4]. Operational Strategy - The company has implemented a new operating model that incorporates automation and artificial intelligence to enhance customer solutions and decouple volume growth from headcount growth. This strategy aims to prioritize profitable business over sheer market share [5]. - Truck load volumes increased by 1.5%, while costs per mile decreased by 3.5%, contributing to gross margin expansion and an adjusted gross profit increase of nearly 8% [5]. Segment Performance - The Global Forwarding adjusted gross profit (AGP) margin decreased from 23% to 20%, but AGP still grew from $179.2 million to $184.1 million. Air AGP saw an 8.9% reduction, while Ocean AGP increased by 8.6% to $116.6 million due to capacity shortages and port congestion [5][6]. - The North American Surface Transportation segment experienced a 4.8% increase in AGP with a 100 basis points margin expansion, contrasting with a decline in the European Surface Transportation segment [6]. Future Projections - Forward projections indicate a 9% increase in EBITDA from 2024 to 2026, leading to an upward revision of price targets for 2024 from $66.69 to $79.36 and for 2025 from $76.94 to $86.80. Despite this, the stock is considered overvalued compared to its median valuation and peers [7]. - The stock has been upgraded from sell to hold, reflecting the positive impact of the new operating model, but concerns remain regarding the stock's high valuation relative to expected growth [8].