Debt & liquidity
I want to invest in companies that are fiscally responsible, so it’s important to look at debt levels and see that they are at reasonable levels.
In the past, C.H. Robinson Worldwide had no debt, but in 2012 they took some on. The debt to equity ratio is still very low, so I am not worried. Overall, the company seems to be in good financial health.
Shares outstanding
Shares outstanding have been steadily decreasing, which is a good sign. I’d like to see this trend continue.
Valuation
Morningstar currently rates C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) a 4 star stock as it is currently priced around its estimated fair value of $73. For Morningstar to rate C.H. Robinson Worldwide as a 5 star undervalued stock, the price would have to fall below their “consider buy price” of $51.10.
I calculate my own target prices and came up with $56. To see the details of this calculation read the full analysis of C.H. Robinson Worldwide.
Other investment options in the same industry
CH Robinson Worldwide shares the industry with Expeditors International of Washington (NASDAQ:EXPD), FedEx Corporation (NYSE:FDX), and United Parcel Service, Inc. (NYSE:UPS).
Expeditors International of Washington (NASDAQ:EXPD) has the best dividend streak coming in at 19 years. It also has the best past annual dividend growth rates of the three. Its reasonable payout ratio of 38% and good estimated annual EPS growth of 11.8% all point to continued strong dividend growth. These are great dividend fundamentals, but the dividend yield is below the minimum 2%-2.5% entry yield I like.
FedEx Corporation (NYSE:FDX) has OK dividend growth rates, but with the lowest payout ratio and highest estimated annual EPS growth, it looks like dividend growth will be improving in the future. Like Expeditors International, the minimum entry yield is too low for me to consider investing right now.
United Parcel Service, Inc. (NYSE:UPS) has a dividend streak of four years, which is the lowest of the three. Its dividend growth rates are all around the 8% or higher that I like to see, but its payout ratio is well above a reasonable level. Its yield is above 2.5%, but because of its high payout ratio and low dividend streak, I won’t be investing. I typically like to invest in U.S. companies when they have a dividend streak around 10 years or more.
From a valuation perspective, Expeditors International looks like the best alternative.
Expeditors International is the only company of the three that has a current dividend yield significantly above its five-year average. It is also the closest of the three to Morningstar’s five star price of $32.90, with a current price roughly 13% higher. Using the current annual dividend of $0.60, the price would have to drop to $24 to get a dividend yield of 2.50%. This would require a significant price drop from current levels, so I won’t be investing in Expeditors International.
Right now, I prefer C.H. Robinson Worldwide because it is closer to my target price and because of the larger dividend yield.
Conclusion
C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) has a strong competitive advantage and wide economic moat. It has consistent earnings growth and strong dividend growth fundamentals. I expect annual dividend growth to be around 8% going forward. C.H. Robinson Worldwide recently fell below my target price, which is why I was happy to buy shares.
The article Is This Stock a Buy at Today’s Prices? originally appeared on Fool.com and is written by Michael Weber.
Michael Weber owns shares of C.H. Robinson Worldwide. The Motley Fool recommends FedEx and United Parcel Service. The Motley Fool owns shares of Expeditors International of Washington. Michael is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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