C.H. Robinson Worldwide, Inc.

CHRW Details

C.H. Robinson Worldwide, Inc. (NASDAQ: CHRW) is a leading global comprehensive freight transportation and logistics services company that serves various industries. Its operating segments are 1) North American Surface Transportation (NAST), which provides truckload and less than truckload (LTL) transportation services throughout North America, and 2) Global Forwarding, offering ocean freight services, air freight services, and customs brokerage services. The company operates through a network of domestic and international offices. CHRW derives most of its revenues from the NAST segment.

Geographical Expansion Through M&A: On May 06, 2021, CHRW announced the acquisition of Combinex Holding BV (Combinex), a rapidly flourishing freighter in the Benelux region specializing in transportation of dry, fresh, and frozen goods. Combinex complements the company’s European Surface Transportation business and will extend its reach in Western Europe.

Q1FY21 Results: The company reported a 26.25% rise in net revenue to USD 4.80 billion in Q1FY21 (ended March 31, 2021) compared to USD 3.81 billion in Q1FY20 attributable to higher volume and favorable pricing in almost all of its service lines. CHRW’s operating income witnessed a growth of 104.07% YoY to USD 223.33 million in Q1FY21 vs. USD 109.44 million in Q1FY20, with a 177 bps improvement in the operating margin. In addition, the company reported a surge of 121.77% YoY in net income to USD 173.31 million in Q1FY21, in contrast to USD 78.15 million in Q1FY20.

Key Risks: The company operates in a cyclical industry, and a reduction in freight volume due to a downturn in customers' business activity could hurt the company's financials. Furthermore, it depends on several third parties for various delivery services and equipment needs. Failure to meet any contractual obligation with these third parties could harm its operations. Also, CHRW carries its business in many countries outside the United States, making it vulnerable to exchange rate fluctuations. Further, CHRW's top 100 customers accounted for ~28% of its net sales and 20% of adjusted gross profit in FY20. The loss of any of these key customers could hurt the company's financials.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

 (Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

CHRW Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: CHRW stock price has decreased 7.08% and 1.66% in the past 3 and 6 months, respectively, and is currently trading at mid-point of the 52-week range of USD 84.23 to USD 106.75. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is 46.02.  We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 101.76. Considering the correction in the stock price, decent financial performance, associated risks, acquisitions, and current valuation, we recommend a "Watch" rating on the stock at the current price of USD 93.63, down 0.33% as of July 16, 2021, 01:28 PM ET.

* All forecasted figures and Industry Information have been taken from REFINITIV.

* The reference data in this report has been partly sourced from REFINITIV. 

Regal Beloit Corporation

RBC Details

Regal Beloit Corporation (NYSE: RBC) designs, manufactures, and sells electric motors, electrical motion controls, and power generation products to Original Equipment Manufacturers (OEMs) globally. Its operating segments include 1) Commercial Systems, which engineers AC and DC motors, electronic variable speed controls, fans, and blowers for industrial applications such as ventilation, irrigation, etc., 2) Industrial Systems, manufacturing generators, alternators, switchgear, and aftermarket parts for commercial use in agriculture, marine, mining, oil & gas, and other sectors, 3) Climate Solutions, engaged in making small motors, air moving solutions to serve residential and light commercial HVAC (Heating, ventilation, and air conditioning) businesses, and 4) Power Transmission Solution, manufacturing and selling belt and chain drives, gearing, bearings, couplings, hydraulic pumps, and large mechanical products. As of July 16, 2021, its market capitalization stood at USD 5.37 billion.

Simplifying Processes through Innovation: On July 15, 2021, RBC unveiled Regal internet of things (IoT), a new uncomplicated way for users to buy its wide range of sensors, software, and services by grouping them into four classes of connected products and sensors, and introducing three analysis and reporting service packages. Powered by Perceptiv intelligence, it can be tailored to meet the needs of a wide variety of customers in almost every industry.

Q1FY21 Results: The company reported a growth of 10.88% YoY in net sales to USD 814.1 million in Q1FY21 (ended April 03, 2021) compared to USD 734.2 million in Q1FY20 (ended March 28, 2020), attributable to an increase in revenue from North America and China geographies. In Q1FY21, gross profit rose 20.71% YoY to USD 245.4 million, along with a 245 bps improvement in the gross margin. In addition, the company reported a 43.23% YoY increase in net income to USD 65.6 million in Q1FY21 compared to USD 45.8 million in Q1FY20. As of April 03, 2021, the company had cash and cash equivalents of USD 566.4 million and long-term debt of USD 786.9 million.

Key Risks: RBC sells most of its products in the market and industries such as HVAC, refrigeration, power generation, oil & gas, and unit material handling or water heating. Any prolonged decline in business activity in these markets could hurt the company’s financials. In addition, some of its manufacturing components are sourced from a single or limited number of vendors. Any failure on the contractual obligation by vendors could harm its operations. Furthermore, RBC derives a significant portion of its net sales from a finite number of large customers. The loss of any of these key customers could affect its financials.

Outlook: As of Q1FY21, RBC forecasts growth of more than 20% in its net sales in Q2FY21. It also expects its GAAP EPS to range between USD 1.50 – 1.70, along with a Non-GAAP EPS of USD 1.85 – 2.05.

Valuation Methodology: EV / EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

RBC Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: RBC stock price has decreased 9.86% and 3.17% in the past 3 and 6 months, respectively, and is currently leaning towards the higher end of the 52-week range of USD 89.77 to USD 159.64. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is 44.95.  We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 142.26. Considering the correction in the stock price, decent financial performance, associated risks, and current valuation, we recommend a "Watch" rating on the stock at the closing price of USD 131.07, down 0.76% as of July 16, 2021.

* All forecasted figures and Industry Information have been taken from REFINITIV.

* The reference data in this report has been partly sourced from REFINITIV.