C.H. Robinson Worldwide (NASDAQ:CHRW) reports third-quarter results next week, and its last report set a high bar. Adjusted earnings per share rose 24.8% in the second quarter, even though the company says the freight market is still in the trough of its demand cycle.
But earnings growth isn’t the same as a growing business. Over the past five years, C.H. Robinson’s sales have grown about 0.03% a year, so its profit gains came from earning more on the freight it already had, not from winning a lot more of it. Now it wants to acquire rival RXO to repeat the trick at a larger scale.
C.H. Robinson sells truckload, less-than-truckload, air and ocean shipping to business customers. The facts support the profit gains, but the stock price already reflects them, and the RXO deal adds a risk that the company’s own cost cuts never carried. For investors looking to add more logistics exposure, our list of 10 Best Logistics Stocks to Buy Right Now is worth a look.
Fewer People Are Moving More Freight
The engine is a cost program the company calls Lean AI. Average headcount fell 10.8% in the second quarter, while volume in its North American surface transportation unit rose about 1.5%, against a 3.3% drop in the Cass Freight Shipment Index. That was the 13th straight quarter the unit grew faster than the market.
Adjusted gross profit rose only 6.5%, yet adjusted earnings per share rose 24.8%, because the company needed fewer people to handle the work. Pricing held up as well: gross profit on each truckload shipment stayed flat even as costs in the spot truck market rose sharply. If you’re interested in AI investing, we recently compiled a report on 10 Best AI Stocks to Buy in October.
The RXO Deal Tests the Playbook
CEO Dave Bozeman calls the RXO purchase a logical next step in the company’s transformation. The deal is valued at $5.8 billion and paid mostly in cash that C.H. Robinson plans to borrow. Management expects about $300 million in net cost savings within two years of closing, by applying Lean AI to RXO’s business.
To pay for it, the company will pause share repurchases until its debt falls back to its target range, a goal it sets for the end of 2028. Cash from operations also fell sharply in the second quarter, to $35.9 million.
One weak quarter isn’t a trend, and the company expects the deal to add to adjusted earnings per share within nine months of closing. Still, a shareholder now owns a company that has to pay down debt before it returns more cash. That limits how fast per-share earnings can grow, but it doesn’t undo the gains already made.
What the Stock Price Already Assumes
The stock trades at about 22 times estimated 2026 earnings, against about 19 times for the sector median and a five-year average of about 22 for C.H. Robinson itself. The consensus forecast calls for 2026 earnings per share to grow 23.88%, which helps explain the premium to the sector. The multiple uses adjusted earnings, but the gap to GAAP earnings was small in the second quarter.
That puts the stock right where it has usually traded, even though buybacks are set to pause. Shareholders today pay a normal price for growth that now depends on integrating a new business. If you’re looking for cheaper names, check out 10 Best Undervalued Stocks to Buy in October.
So can the growth last? The record shows the method works on C.H. Robinson’s own operations. Whether it works on RXO won’t be clear until well after the deal closes in the first half of 2027. Until then, the number to watch is cash from operations, which fell to $35.9 million in the second quarter. Next week’s report will show whether the debt paydown has money behind it.
While we acknowledge the risk and potential of CHRW as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CHRW and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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This article is originally published at Insider Monkey.
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