essays pieces of the puzzle
Friday, February 8th, 2013
the over-under

13 0208 zCHRW

Since its IPO in 1997, C.H. Robinson Worldwide (CHRW) has a total return of 1,520%.  (The lead manager was BT Alex. Brown, during that short period when the oldest investment bank in the U.S. was owned by Bankers Trust, before being gobbled up by Deutsche Bank.)

The chart above lops off the first ten years of the company’s history and the top panel shows the total return relative to the S&P 500.  CHRW was a stalwart during the financial crisis, vastly outperforming the market, and then held its own during the rally.

The last couple of years haven’t been as good.  The middle panel shows the Bloomberg consensus estimates (it tracks 25 firms covering CHRW).  I added arrows showing the last six earnings reports.  The price changes during the subsequent trading days have ranged from -5.6% to -9.7% (the most recent one).

This chart shows the challenges of producing or using sell-side research.  Notice:

*By and large, consensus numbers change in response to company earnings reports, not in recognition of the company’s fundamental improvement or deterioration in advance of the reports.

*The profile of estimates often follows the movement of the trailing results (here shown in the aqua line in the third panel), just as is the case with other kinds of predictions.

*Analysts pay little attention to their estimates of long-term growth (for CHRW, also in the third panel), making it one of the worst statistics out there.  The growth rates tend to be really sticky and often divorced from what seems likely.

The way things work, it is accepted wisdom that CHRW is “a 15% grower.”  It hasn’t been — will it be?  A basic part of judging the stock is betting the over-under on that number.  (Chart:  Bloomberg terminal.)