The Bear Case For C.H. Robinson Less Likely Now, Says UBS

UBS upgraded shares of C.H. Robinson Worldwide Inc CHRW, suggesting that rising visibility to cyclical drives makes the downside case less likely.

As such, UBS upgraded shares of the company from Sell to Neutral and also lifted its price target from $65 to $75.

At the time of writing, shares of C.H. Robinson were rallying 1.90 percent to $71.50

Analysts Thomas Wadewitz and Alex Johnson clarified that the possibility of stronger truckload contract rates is increasing. The analysts noted that the truckload market tightened in the second quarter, with spot rates rising significantly year over year.

Tighter Market

Based on conversations with truckload carriers and brokers, the analysts said August has seen better-than-normal seasonality, in line with the pattern seen throughout the second quarter and in July.

The analysts also think the impact of Hurricane Harvey would add demand and tighten the truckload market over the next several years. According to the analysts, the tightness of the truckload market, though may not be as strong as in 2014, may serve as a framework for the potential strength of the truckload market in 2018, especially considering the implementation of ELD.

Cyclical Story Dominates

UBS sees a more favorable environment for truck brokers in 2018. Despite the competitive threat posed by new technology-focused brokers such as Uber, Freight, Convoy etc in the near term, the firm said these firms will take time to build scale and have a meaningful impact on the truckload market.

"We expect the cyclical tailwind to be a stronger driver of EPS in 2018 vs secular factors," the firm said.

UBS raised its 2018 earnings per share estimate by 4 percent to $3.75 per share and its 2019 estimate too, citing the prospect for stronger gross revenue growth and better operating margin performance.

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