JPMorgan Starts Bearish Coverage On C.H. Robinson Worldwide

JPMorgan has initiated coverage of C.H. Robinson Worldwide, Inc. (NASDAQ: CHRW) with an Underweight rating and $66 price target, saying the logistics company faces a tough road ahead.

The brokerage also added the stock to the U.S. Analyst Focus List as a short idea.

"CHRW faces a challenging road ahead after the end of what we see as a once-in-a-decade combination of margin expansion and truckload (TL) market share gains," analyst Brian Ossenbeck wrote in a note.

Ossenbeck expects 2016 margins to illustrate the cycle peak as historically, "stock performance twelve months after a peak was negative twice as often as it was positive."

Ossenbeck sees margin contraction off the 2016 peak based on improving truckload fundamentals in 2017 and tighter broker spreads in a balanced market, along with a rising diesel price curve.

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Further, the analyst said the stock's "valuation and forecasted EPS growth have a strong positive correlation suggesting the current multiple is too high for the PEG ratio to remain within historical norms."

"One-and two-year forecasted earnings growth shows a 0.75 correlation with CHRW's P/E multiple. The stock's average historical PEG ratio on a two-year CAGR is 1.0x, reaching 1.5x in 2009, but it currently trades at 2.4x consensus 2016-18E EPS growth," Ossenbeck highlighted.

The analyst expects 2016 EPS of $3.76 a share versus Bloomberg estimate of $3.78.

"EPS estimates could also be too low, but that outcome appears less likely given we expect a more balanced TL market in 2017 will compress broker spreads as new shipper routing guides narrow the substantial spot/contract rate gap," Ossenbeck said.

Shares of C.H. Robinson closed Friday's regular trading session at $74.43 and were down 1.80 percent in Monday's pre-market session to $73.09 at time of writing.

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