J.B. Hunt Delivering Stronger Results Through Challenging Times

 

There is definitely such a thing as being “too busy”, and the combination of intense demand, labor and asset shortages, the ongoing pandemic, and so on has made day-to-day operations quite challenging for J.B. Hunt (NASDAQ:JBHT). I believe the company is managing this chaos well, and I do believe the company will start seeing smoother results in the coming quarters, possibly setting the stage for a period of “over-earning” as the company reaps the benefit of higher pricing.

I thought J.B. Hunt was a potential “buy the dip” opportunity back in October of 2020, but I wasn’t completely sold on the story then. Since then, the shares have only modestly outperformed the S&P 500 and the industrial stock sector, though it has outperformed the Dow Jones Transportation by a nice 10-point margin. I do think there is beat-and-raise potential in the second half, but I think the longer-term return potential is more average now.

 

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J.B. Hunt Delivering Stronger Results Through Challenging Times

Improving Freight Demand Creates Material Hurdles For J.B. Hunt

File this under "be careful what you wish for" - while J.B. Hunt (JBHT) traded sharply higher from March to August on expectations of a sharp recovery in the U.S. freight market, that turn created some significant operational challenges for J.B. Hunt and the company wasn't fully up to the task, leading to weaker than expected results in a recovering market.

On one hand, the rail and warehouse congestion issues and labor shortages are understandable issues that would have challenged any company. On the other hand, isn't the argument for paying a double-digit multiple to EBITDA for J.B. Hunt based on the company's expertise in handling and smoothing over freight logistics challenges? I'm tempted to look at this as a "buy the pullback" opportunity, if not for management's warnings that the congestion/frictional issues that hit the third quarter are going to continue into the fourth quarter and that margins would be under pressure until next year's spring repricing cycle (so, Q2'21).

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Improving Freight Demand Creates Material Hurdles For J.B. Hunt

J.B. Hunt Surprises With Intermodal, But The Future May Be More Dedicated

Transports like J.B. Hunt (JBHT) are often looked at as early-cycle plays, and while the market's abrupt shift toward looking past COVID-19 may be too much too soon, it has helped send these shares more than 75% higher from the March panic-lows. Although that level of appreciation doesn't seem to leave a lot of low-hanging fruit from a valuation perspective, I do see an argument for better performance from this company in the coming years, particularly, I see the company eventually achieving scale with its digital brokerage platform and leaning more toward building its dedicated trucking business further.

I can stretch to make a case for J.B. Hunt shares trading up into the low $150s, but it's not a comfortable stretch and I'm not convinced the U.S. economy is out of the woods. Even so, I think J.B. Hunt is a proven performer and if the shares were to sell off/retrace meaningfully, it's a name I'd definitely consider.

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J.B. Hunt Surprises With Intermodal, But The Future May Be More Dedicated

Seeking Alpha: XPO Logistics' $7 Billion Revenue Ambition

It's almost surprising that XPO Logistics (XPO) hasn't made another major acquisition since I last wrote about the company in mid-January. I am of course being facetious, but not by much, as XPO management has shown an extreme willingness to identify, negotiate, and close deals that bring in new revenue and business opportunities to this fast-growing third-party logistics provider.

The investment thesis here still comes down to belief. If you believe that management will hit its goal of $7.5 billion in revenue and $425 million in EBITDA in 2017, these shares look quite cheap today, but ample risks remain regarding the company's ability to integrate acquisitions, manage the balance sheet, and drive those mid-single digit EBITDA margins. I don't have complete confidence that management will get there, but "close" is still good enough to make this a stock worth considering.

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XPO Logistics' $7 Billion Revenue Ambition

Investopedia: Intermodal Growth Continues To Push J.B. Hunt Higher

Sometimes it's tempting to just say “okay, valuation doesn't matter”, throw caution to the wind, and go into a growth story like J.B. Hunt (Nasdaq:JBHT). After all, with seemingly every quarter this company demonstrates why it's one of the leaders in the still-growing intermodal space. While the stock did lag the S&P 500 over the last quarter, it continues to enjoy rich multiples and ample support on the sell-side. Even though I really do like this company and wish I had bought the stock four years ago, I still can't resolve the valuation in light of the probable returns and cash flow that this business will produce.

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Investopedia: J.B. Hunt's Bigger Challenge Today Is Expectations, Not Operations

The markets remind us over and over again that quality stocks often appreciate well beyond fair value, particularly when they become popular picks in attractive sectors. That would seem to be the case at J.B. Hunt (Nasdaq:JBHT), as it is quite difficult to call the stock's price a bargain by conventional means. While the Street's love for J.B. Hunt has been great for shareholders, it does come with a price, as expectations seem to be quite high for this well-run transportation company.

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http://www.investopedia.com/stock-analysis/041213/jb-hunts-bigger-challenge-today-expectations-not-operations-jbht-chrw-lstr-xpo.aspx

Investopedia: Hub Group Could Deliver Value, But Mind The Margins

Done right, asset-light transportation/logistics services can be quite lucrative even if the reported free cash flow margins are thin. As one of the larger players in intermodal (and the largest asset-light intermodal company), Hub Group (Nasdaq:HUBG) is taking advantage of the same intermodal growth trends that have been helping rival J.B. Hunt (Nasdaq:JBHT) and boosting the performances of Class 1 railroads such as Union Pacific (NYSE:UNP) and Norfolk Southern (NYSE:NSC). Although Hub Group is vulnerable to a further macroeconomic slowdown and a margin squeeze between rail carriers and customers, there could be worthwhile value in these shares.

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http://www.investopedia.com/stock-analysis/2012/Hub-Group-Could-Deliver-Value-But-Mind-The-Margins-HUBG-JBHT-UNP-CHRW1024.aspx

Investopedia: In Challenging Times, CSX Shows Its Qualities

It's no understatement to say that the earnings warning from Norfolk Southern (NYSE:NSC) spooked investors in the rail sector and focused a great deal more attention on fellow East Coast operator CSX (NYSE:CSX). And yet, a company that still carries historical baggage from below-peer operating performance managed to deliver a satisfactory quarter. Although this rail company is still vulnerable to weakness in coal volume, it may not be a bad pick for investors who want to make a leveraged play on a better economy.

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Investopedia: Investors Still Paying Up For J.B. Hunt's Uncommon Growth Prospects

Once again I find myself in a familiar place with J.B. Hunt (Nasdaq:JBHT). I like this growing intermodal services provider, and I do believe it's one of the most compelling organic growth stories in the transportation sector. On the other hand, I don't like how growth-starved investors have bid up the shares of this company to a level where I believe outperformance could prove difficult.

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Investopedia: Expectations, Not Performance, The Biggest Issue At J.B. Hunt

There's really not much a company can do when its stock takes on a popularity above and beyond rationality, as very few CEOs are going to come out and talk down their company's prospects. Nevertheless, fandom can create its own problems, and the popularity of J.B. Hunt (Nasdaq:JBHT) as an organic growth play in transportation and a great way to leverage the growth of intermodal traffic has resulted in high expectations and an arguably unsustainable valuation. Accordingly, I think there's a meaningful gap between how well the company actually performed in the second quarter and how the market has responded.

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http://stocks.investopedia.com/stock-analysis/2012/Expectations-Not-Performance-The-Biggest-Issue-At-J.B.-Hunt-JBHT-HUBG-PACR-NSC0719.aspx

Investopedia: CSX In Solid Shape Despite Weak Coal

Given how often data is reported about the railroad industry, there aren't too many secrets or surprises in the industry. In the case of CSX (NYSE:CSX), for instance, pretty much everybody knew going in that coal numbers were going to look pretty bad, but that other categories like automobiles and intermodal would help the overall numbers. Even with the operational challenges created by lower coal traffic, CSX is doing a good job of improving its operating performance.

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http://stocks.investopedia.com/stock-analysis/2012/CSX-In-Solid-Shape-Despite-Weak-Coal-CSX-UNP-NSC-JBHT0718.aspx

Investopedia: J.B. Hunt Looking A Little Stretched

One of the trickiest parts of investing is figuring out that fine line between opportunism and greed. Take the case of J.B. Hunt (Nasdaq:JBHT). This transportation company is seeing excellent growth in its intermodal business, and intermodal transport is likely to be a strong multi-year growth story. On the other hand, expectations are already pretty steep and competition is sure to ramp up. That makes this a tricky hold, as results are likely to stay strong for a while, but today's valuation makes long-term underperformance more likely.
A Strong Start to the Year
J.B. Hunt definitely offered up a solid start to this year. Total revenue rose 17%, fueled by a 20% rise in the intermodal business. Truck revenue and dedicated service revenue were up much more modestly (8 and 7%, respectively), while the smaller Integrated Capacity Solutions business saw strong 30% growth but remains a relatively small operation.

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Investopedia: Pricing Is Strong At CSX

While rail traffic volumes were not very strong throughout much of the third quarter, there is more to railroad financial performance than just railcar volume. Pricing matters, and pricing has been strong at CSX (NYSE:CSX). Although there are more than a few points of concern around CSX's operating environment, the valuation here seems to assume a fairly bearish scenario. 

A Challenging Third Quarter  
While CSX reported revenue slightly above the average analyst estimate, investors should remember that estimates have been sliding for a few months as disappointing volume data, particularly in coal, has weighed on sentiment. Nevertheless, this was still a double-digit quarter as CSX produced 11% volume growth. Carload volume was up less than 1%, but the company reaped more than 10% additional revenue per carload. Of that, pure price increases (as opposed to fuel surcharge and/or mix shifts) were probably on the order of 6-7%.

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http://stocks.investopedia.com/stock-analysis/2011/Pricing-Is-Strong-At-CSX-CSX-UNP-NSC-ACI-PVR-JBHT-HUBG1021.aspx

Investopedia: J.B. Hunt - Doing More With Less Trucking

It isn't a good sign for the truckload freight industry, when a company like J.B. Hunt (Nasdaq:JBHT) is doing better largely by getting away from the traditional trucking business, as fast as it can. While there will always be a place for trucking in the U.S. transportation system, this company is betting its future prosperity on less traditional operations, like intermodal and customized service offerings. 

Mixed Third Quarter Results  
J.B. Hunt's third quarter results were not bad, but they also were not as good as they may appear, at first look. Revenue rose 19%, with more than 40% of that growth coming from fuel surcharges. Growth was led by the intermodal segment (the company's largest), where revenue rose 24% on a 15% overall increase in load volume. The dedicated services and integrated solutions segments grew nicely, as well, with 16 and 21% growth, respectively. The truck segment was the laggard, growing just 2% on a reported basis, but actually shrinking 5% net of surcharges, on a 7% decline in tractors on the road.

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Investopedia: J.B. Hunt - The Trucking Company That Isn't

As the economy has rebounded and so too has the transportation sector. After all, it's not too easy for companies to sell more "stuff" and not need additional transportation services. While the railroads have been on a much-discussed run since 2009, trucking companies have had a more mixed performance.


Making matters a little more complicated, although J.B. Hunt (Nasdaq:JBHT) is often listed among the trucking companies, that is not really an accurate depiction. In point of fact, intermodal business is the single largest component of the company's revenue and income. What's more, the differences in JBHT's business model seem to go a long way towards explaining why this company has been a solid performer. (To read more on financial statements, see 12 Things You Need To Know About Finncial Statements.)

Strong Demand Leads to Strong Quarter
J.B. Hunt reported a better than 18% jump in revenue for the first quarter, with 13% growth once the impact of fuel surcharges are stripped out of the picture. Intermodal was the leader both in growth and scale, as revenue grew 23% here to $577 million (about 58% of the total) on the back of 15% volume growth. Dedicated contract services saw 15% revenue growth, while revenue from the truck segment rose 6% despite an 11% decrease in loads and a 12% decrease in tractors on the road.


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http://stocks.investopedia.com/stock-analysis/2011/J.B.-Hunt-The-Trucking-Company-That-Isnt-JBHT-NSC-BRK.A-ODFL-ECHO-KNX-SWFT0419.aspx