Why C.H. Robinson Stock Was Sliding Again Today
Key Points
Wall Street is evaluating the RXO deal one day after the announcement.
Investors are preparing for short-term headwinds, despite its long-term potential.
- 10 stocks we like better than C.H. Robinson Worldwide ›
Shares of C.H. Robinson (NASDAQ:CHRW)were slipping again today, one day after the freight brokerage company announced its acquisition of RXO.
The stock fell 11% yesterday as investors seemed to think the deal was a poor use of capital, and today it continued to fall after a pair of Wall Street analysts lowered their price targets.
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As of 1:35 p.m. ET, C.H. Robinson stock was down 4.3%.
Wall Street dials back near-term estimates
Bank of America and Evercore both lowered their price targets on the stock, though they maintained buy-equivalent ratings.
BofA cut its target from $226 to $203, saying that the acquisition will lead to dilution. However, it believes that Robinson could exceed its $300 million synergy target if it can narrow RXO's productivity gap, part of Robinson's thesis, as it can apply its Lean AI technology to RXO.
Evercore acknowledged the long-term earnings accretion from RXO, but said the price and timing of the deal could attract scrutiny, which is part of the reason the stock has fallen since the announcement.
What it means for C.H. Robinson
Robinson said that it would have to take around $3 billion in new debt to pay for the acquisition, and it would suspend share buybacks until it reaches its target leverage ratio. Both of those factors drove the stock sell-off yesterday.
However, the deal should pay off over the long run if the company can deliver the $300 million in synergies it forecast and apply its Lean AI strategy to RXO.
Management predicted that the deal would be accretive to earnings within nine months of closing, meaning investors should have a sense of whether the acquisition is paying off relatively soon.
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Bank of America is an advertising partner of Motley Fool Money. Jeremy Bowman has positions in Bank of America. The Motley Fool has positions in and recommends C.H. Robinson Worldwide. The Motley Fool recommends RXO. The Motley Fool has a disclosure policy.
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