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Read This Before You Invest In Logistics

Saturday - 4/6/2013, 7:34pm  ET

 Investors willing to make some money from the recovering economy can consider the logistics industry, which seems to be gaining steam. The U.S. manufacturing sector outlook is bullish for 2013, as companies expect to expand their businesses. Eventually, the logistics industry will be a direct beneficiary in this scenario. Keeping this in mind, I've picked up three stocks: CH Robinson Worldwide , FedEx and Forward Air  for further analysis. Let's find out if there exists an investing opportunity in any of them.

FedEx

FedEx posted high growth in volume during 2012's holiday season. The company experienced three peak holidays, first on Cyber Monday and the other two in Dec. 2012. FedEx services such as FedEx Ground, FedEx Home Delivery and FedEx SmartPost were the choices of many web-based retailers to deliver goods during the holiday season. This improved spending during the holiday season has helped the company post growth of around 13% in volume. I believe FedEx's solid performance during the peak holiday season sets up ground for good numbers in its third quarter results for fiscal 2013. On the flip-side, the increased jet-fuel prices (up around 7% since Dec. 2012) and diesel prices (up about 3%) will remain headwinds in the company's overall profitability.

To overcome this challenge in the future, FedEx introduced a cost-saving plan for $1.7 billion that will materialize in early fiscal year 2014. About 75% of all cost savings will be realized by fiscal year 2015, and will be fully completed by 2016. Under this, the company is targeting $500 million of savings by improving the functional efficiency of its processes and staff. This will further drive EPS by $0.28 per share above the consensus estimate in fiscal year 2014.

I believe that strong volume growth during the holidays and an impressive cost-saving plan are good indicators for the company's long-term growth.

CH Robinson Worldwide

The fourth quarter 2012 results weren’t encouraging for CH Robinson's investors. The company posted an EPS of $0.68, versus the Street expectation of $0.70. Disappointment in the results was mainly due to divestiture of the T-Check segment, adjustment and acquisition expenses of Apero Logistics and Phoenix, and higher operating expenses. On the contrary, the company's total net revenue was up by around 10% at $444.6 million, beating the Street expectations.

Although there isn't an immediate effect of cost synergies with the Phoenix acquisition, it's expected that market share and productivity will grow in the future. Phoenix deals in the international freight-forwarding service industry, and currently has a solid base of around 15,000 global customers. I feel that this horizontal integration will help Robinson in the long-term, due to vast opportunities in the international forwarding service industry.

The company's free cash flow has always remained a strong positive factor for shareholders. The FCF stood at $410 million in 2012, and the guidance for 2013 is around $499 million. Also, after acquisitions and divestiture, Robinson's debt to total capitalization is around 14.5%. Going forward, shareholders can expect that the company will utilize its FCF to pay down debt, along with buybacks and dividend declaration. Robinson repurchased around $237 million worth of stock in 2012, and shareholders can anticipate a more aggressive strategy in 2013.

Going forward, I expect the company's expanding customer and carrier base via acquisitions will drive growth. The consensus estimate of around 16% and 18% of growth in the EPS for 2013 and 2014, respectively, looks achievable and I would recommend a buy on this stock.

Forward Air

In Feb. 13, Forward Air posted fourth quarter, as well as the full year, 2012 results. It was a mixed bag for the company, as the company's solid performance over the year was offset by a very weak ending in Dec. 2012. However, the company posted an increase of 8% in its quarter EPS of $0.54 on year-on-year basis. This was mainly due to lower-than-expected tax rate.

The company's complete shipments for the quarter were up by around 30% on a yearly basis. However, it lost a large customer base in the second half of 2012, which was using complete service offerings. I anticipate this will impact shipments growth in 2013 and a modest drag of $0.05 in the EPS.

On the brighter side, the company’s growing segment, Forward Air Solutions, posted revenue growth of 12.5% in the fourth quarter, above the estimated 10%. I expect the 2013 revenue growth of this segment to be around 14%. It needs a mention here that Forward Air Solutions has won a new retail business client in this quarter, which will be fully on board by the end of the first quarter of 2013.

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