Home>Video>The Logistics Are There for This Undervalued Stock

The Logistics Are There for This Undervalued Stock

Wed, 16 Apr 2014

A strong network effect, with scale and bargaining power, provides this wide-moat firm a long runway of opportunity to gain market share in the coming years.


Video Transcript

The Morningstar Minute is our quick take on investments, the market, economic indicators, and more. Join us every day for fresh insights from our analyst team.

Matthew Young: Economic moats are common in transport, particularly in the asset-light, third-party logistics industry.

Within the third-party logistics space, we think highway brokerage specialist C.H. Robinson enjoys a wide economic moat. As a non-asset-based transportation provider, the company does not own trucks. You could think of it as a travel agent for freight in that it links up truckload capacity with which shippers and their customers and earns a spread in the process.

We think that the network effect bestows pretty powerful competitive advantages for the asset-light third-party logistics providers with scale. That is, customers are able to leverage companies like C.H. Robinson. They can leverage their broad capacity access and their immense bargaining power. And on the supply side, truckers gain access to a deep reservoir of freight opportunities to lower their empty miles, supplement the sales force, sales efforts, et cetera. And when you put all these things together, essentially, the dynamics become more powerful and harder to replicate really as a third-party logistics firm's network gets bigger in size.

We think evidence of these competitive advantages show up in C.H. Robinson's average returns on invested capital historically, which approached 30%. And so it's a pretty powerful dynamic in this business.

Now why do we think C.H. Robinson still has a wide economic moat? We do think competitive rivalry is intensifying in this business, which is one reason why we've given the company a negative moat-trend rating. That said, the third-party logistics industry remains highly or immensely fragmented with thousands and thousands of small and midsize providers of less sophistication than the larger providers. And we think that this provides a long runway of opportunity for the moaty firms like C.H. Robinson to gain market share in the years ahead.

In terms of valuation, we do think that C.H. Robinson is undervalued, and we think it provides opportunity for patient investors.

  1. Related Videos
  2. Related Articles
  1. Why Moats Matter

    An economic moat provides a gauge of a company's competitive advantages and overall strength, and it is a highly valuable tool for investors of all levels.

  2. 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.

  3. Ready Your Portfolio for Retirement

    Morningstar's Christine Benz demonstrates how to make a bucket portfolio best work for you, touching on allocation, RMDs, other income sources, and more.

  4. Picks and Strategies to Navigate Today's Market

    Roundtable report: Morningstar strategists offer up their best ideas for a fully valued, low-yield market with few attractive choices.

  5. The Friday Five

    Still gas in the tank for Apple, Facebook gets mobile mojo, a possible wide - moat combination, and more.

  6. Comings and Goings in the Wide Moat Focus Index

    Morningstar's Elizabeth Collins discusses the index's selection process and highlights one of the recent additions.

  7. 3 Stock Picks in the Oil-Services Sector

    The increasing complexity and capital intensity of oil and gas drilling creates significant long -term potential for these undervalued wide - moat companies, says Morningstar's Rob Bellinski.

  8. A Wide -Moat Opportunity in Health Care

    Actavis' transformation to a wide - moat company following its deal with Allergan represents a good buying opportunity for long -term investors.

©2017 Morningstar Advisor. All right reserved.