This Logistics Company Is Likely To Offer Higher Returns Over UPS Stock
We believe that C.H. Robinson Worldwide stock (NASDAQ: CHRW), a multimodal transportation services and third-party logistics provider, is currently a better pick than UPS stock (NYSE: UPS), given its better prospects. Although CHRW stock is trading at a comparatively lower valuation of 0.5x trailing revenues, compared to 1.2x for UPS, this gap in valuation, to some extent, makes sense, given UPS’ superior profitability and lower financial risk, as discussed below.
Looking at stock returns, C.H. Robinson, with a 2% rise this year, has fared better than UPS stock, which is down 11%, and both have outperformed the broader S&P500 index, down 17% over this period. There is more to the comparison, and in the sections below, we discuss why we believe CHRW stock will offer better returns than UPS stock in the next three years. We compare a slew of factors such as historical revenue growth, returns, and valuation multiple in an interactive dashboard analysis of UPS vs. C.H. Robinson Worldwide: Which Stock Is A Better Bet? Parts of the analysis are summarized below.
1. C.H. Robinson Worldwide’s Revenue Growth Is Better
- Both companies posted strong revenue growth over the recent quarters. Still, C.H. Robinson Worldwide’s revenue growth of 38.0% over the last twelve months is slightly better than 34.6% for UPS.
- Even if we look at a longer time frame, C.H. Robinson Worldwide fares better. While UPS’ sales grew at an average growth rate of 10.8% to $97.3 billion in 2021, compared to $71.9 billion in 2018, C.H. Robinson Worldwide saw its sales rise at an average growth rate of 13.5% to $23.1 billion from $16.6 billion over the same period.
- For UPS, revenue growth over the recent years was driven by shelter-in-place restrictions during the pandemic, resulting in e-commerce growth, aiding its ground shipments. However, this trend is now cooling off, slowing delivery volume growth. For perspective, UPS saw a 14.5% rise in ground average daily package volume in 2020, but the growth slowed to 1.6% in 2021. For the six months ending June 2022, the average daily package volume was down 4.2% y-o-y.
- For C.H. Robinson Worldwide, its Global Forwarding segment, which includes ocean freight services, air freight services, and customs brokerage, has been the key growth driver for the company over recent years. For perspective, the segment revenues have risen nearly 3x to $6.7 billion in 2021, compared to $2.3 billion in 2019, before the pandemic.
- The company’s revenue growth has also been bolstered by acquisitions of Space Cargo and Dema Service in 2019 and Prime Distribution Services in 2020.
- Our UPS Revenue and C.H. Robinson Revenue dashboards provide more insight into the companies’ sales.
- Looking forward, UPS’ revenue growth over the next three years is expected to be slightly better than C.H. Robinson Worldwide. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 6.9% for UPS, compared to a 5.9% CAGR for C.H. Robinson Worldwide, based on Trefis Machine Learning analysis.
- Note that we have different methodologies for companies that are negatively impacted by Covid and those that are not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed in the three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.
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2. UPS Is More Profitable, And It Offers Lower Risk
- UPS’ operating margin of 11.3% over the last twelve-month period is much better than just 5.1% for C.H. Robinson Worldwide.
- This compares with 11.4% and 4.8% figures seen in 2019, before the pandemic, respectively.
- UPS’ free cash flow margin of 12.2% is also better than just 1.0% for C.H. Robinson Worldwide.
- Our UPS Operating Income and C.H. Robinson Worldwide Operating Income dashboards have more details.
- Looking at financial risk, UPS is better placed among the two. Its debt as a percentage of equity of 12.8% is much lower than 16.0% for C.H. Robinson Worldwide, while its 15.2% cash as a percentage of assets is higher than the 3.2% for the latter, implying that UPS has a better debt position and has more cash cushion.
3. The Net of It All
- We see that C.H. Robinson Worldwide has demonstrated better revenue growth and is trading at a comparatively lower valuation. On the other hand, UPS is more profitable and offers lower financial risk.
- Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe C.H. Robinson Worldwide is currently the better choice of the two.
- The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 6% for UPS over this period vs. a 27% expected return for C.H. Robinson Worldwide, implying that investors are better off buying CHRW over UPS, based on Trefis Machine Learning analysis –UPS vs. C.H Robinson Worldwide – which also provides more details on how we arrive at these numbers.
While CHRW may outperform UPS stock, it is helpful to see how UPS’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Furthermore, the Covid-19 crisis has created many pricing discontinuities, which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for FedEx vs. Amerco.
With inflation rising and the Fed raising interest rates, among other factors, UPS stock has fallen 11%. Can it drop more? See how low UPS stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.
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|S&P 500 Return||0%||-17%||76%|
|Trefis Multi-Strategy Portfolio||0%||-15%||234%|
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