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C.H. Robinson Might Be Cheap Down the Road

With margin compression coming, we think the market may unfairly punish the wide-moat truck brokerage leader creating an opportunity for investors.

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Matthew Young: While C.H. Robinson is currently trading in fairly valued territory, we think investors should keep an eye out for potential opportunities to buy this wide-moat truck-brokerage leader at a discount to our $73 fair value estimate in the quarters ahead.

The firm has entered a period of gross margin compression, as they normalize from unusual highs in 2015 and early 2016 when truck-load industry capacity was tight, which previously drove up contractual pricing to customers. However, over roughly the past year, the tides turned, and loosening capacity weakened Robinson's customer contract pricing. So, the firm is now seeing its average sell rates to customers fall to a greater degree than prices paid to truckers--hence the gross margin pressure.

Matthew Young does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.