MacroHint

Stock Analysis: J.B. Hunt (NASDAQ: JBHT)

About J.B. Hunt

Have you ever found yourself on a long road trip, trudging through the Midwest, where available exits are far from plentiful and there are cornfields as far as the eye can see? If so, you’ve also likely been in close proximity to one of J.B. Hunt’s big rigs!

Transport trucking giant J.B. Hunt was founded in August of 1961 where it is currently headquartered, Lowell, Arkansas.

This freight transportation behemoth, J.B. Hunt, has just north of 30,000 employees nationwide and is currently the sixth largest trucking company in the nation.

They are in the business of hauling freight all around the country as efficiently and safely as possible. Unlike a few other trucking companies, one of the company’s strengths is its ability to form business relationships with rail freight companies of the likes of Norfolk Southern and Union Pacific.

The logistical freight company has enjoyed many years of financial success while simultaneously providing important everyday goods and services for its customers across the country. Additionally, they’re likely one of the trucking lines you’ve signaled a driver to blow their horn when taking a long road trip; I know I have!

J.B. Hunt’s numbers

If you bought stock in J.B. Hunt when it made its stock market debut (and still held it today), you’d be up nearly 14,000%.

Our team at MacroHint would say that’s not a terrible return on investment!

While it’s next to impossible that you’ll achieve any sort of similar return on this stock if you bought it today, let’s look at J.B. Hunt’s fundamentals and see if there’s some cause for organic rise in share price.

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J.B. Hunt is a nearly $22 billion company (figured by the company’s market capitalization) that is seemingly liked by many of the major ratings agencies and major analysts. Now, you shouldn’t buy a stock or solely base your investment decisions off so-called “expert” analysts who say a stock is a “buy” or “sell.”

While it is interesting to see where the major ratings agencies and premier analysts stand on a company, it shouldn’t necessarily sway you one way or the other.

Nonetheless, J.B. Hunt’s stock has a strong, overall positive sentiment. But like we said, this is just a piece of the analysis puzzle!

The logistical transport company holds nearly $6.8 billion in total assets and nearly $3.7 billion in total liabilities. While sifting through the balance sheet, our team noticed that the company’s total long term debt in Q2 2021 stood at around $1.3 billion, and as of their most recently reported quarter (Q4 2021) they’ve brought it down to $945 million.

In a time of prevalent supply chain peril and sheer chaos, an industry leader found ways to cut a considerable amount of its total long term debt.

Our team doesn’t really like that at all; we LOVE that. The company has seemingly continued to provide for its customers across the nation while trimming down a substantial amount of debt. The logistical transport industry pioneer appears to be lean, mean and poised to continue growing at a steady rate.

Being a beneficiary of demand in the world’s recent supply chain hurdles, J.B. Hunt’s total operating income has been surging in most recent fiscal quarters as well.

Strolling over to the cash flow statement, while their total cash from operations stood relatively low in Q1 and Q2 of 2021, their most recently reported Q4 2021 aggregate cash from operations is creeping back to normal, higher levels (approximately $1.2 billion).

J.B. Hunt’s stock valuation

In terms of valuation, we see J.B. Hunt as ever-so-slightly overvalued. Their business has been on fire lately due to the unprecedented wave of demand that stemmed and is still spilling over from COVID-19 and the supply chain debacle the country’s currently facing. However, letting the numbers talk, the company maintains a price-to-earnings ratio of 29.35 (as of 3/29/2022) whereas the industry’s average is 30.44. While undervalued in the context of its industry, it’s slightly inflated when compared to the standard “anything above 20 is said to be overvalued” price-to-earnings ratio view.

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We figure the true value of the company is somewhere in the middle.

On a profitability basis, J.B. Hunt’s margins aren’t anything to write home about. In fact, compared to its peers, they are noticeably low. For example, their annual gross profit margin stands at 16.91% whereas the industry’s average is 62.49%, according to TD Ameritrade’s platform.

However, what the company lacks in comparative annual profitability, it makes up for in annual revenue growth. Specifically, the industry average is approximately 15% whereas J.B. Hunt sits just above 22%. This is quite assuring, especially for a company that has been a huge player in its industry. Many great companies only grow so much then begin to plateau; this does not appear to be the case with J.B. Hunt.

Nonetheless, steady growth from a dominant industry player is something to treasure and not take likely.

J.B. Hunt’s efficiency

Another one of the most encouraging metrics found in the company’s financials relates to their efficiency.

Particularly, the company’s annual return on equity, return on assets, and return on investment metrics are outstanding, sitting well above industry averages. Specifically, according to TD Ameritrade, J.B. Hunt’s annual return on assets stands about 4% higher than the industry average, their annual return on investment is around 7% higher than the industry along with the company’s 9% higher annual return on equity compared to the industry as well.

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As long as J.B. Hunt continues growing out its moat, it will organically create more opportunities for margin expansion and subsequently, increased growth in profit overall.

The future looks bright for the trucking company started by an Arkansas-couple.

J.B. Hunt’s future

The supply chain mess is seemingly far from over. While the brunt of the chaos has seemed to have partially subsided after the holiday season (at least among the pundits of the major business news networks), our team believes there will be many supply chain-related challenges that will be faced, willingly or not, in the near, intermediate and long term.

Trucking leaders such as J.B. Hunt are the answer to our concerns: they’ve proven it in the past!

While the major holiday season has passed, people are still going to order goods across the globe and need them transported in a timely fashion. The only thing that will be different between the previous holiday season and now is the frequency at which people need their goods and products transported across the country.

In other words, from our perspective, consumers have gotten used to efficient delivery and thus likely have higher standards (and demand) for products. If they got their goods during the peak of the pandemic and supply chain crisis, why wouldn’t they expect the same service (if not even better) going forward?

Thankfully, for J.B. Hunt, trucks still need to be humming along interstates at 75 miles per hour, driving to and from loading depots to make sure we can buy the new PlayStation 5.

We are very bullish on the trucking industry as a whole in the short, intermediate, and long term as supply chain scares and aggregate consumer demand will likely continue to steadily rise in years to come.

Should you buy J.B. Hunt stock?

J.B. Hunt needs to work on squeezing out a larger profit for us to get really excited about purchasing the stock at current price levels (as of this writing, hovering around $210 per share). However, the company has made some strong strategic moves in the turbulent economic times, one of which we think investors should be absolutely thrilled about.

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Specifically, J.B. Hunt recently announced its new partnership with railroad behemoth, Burlington Northern Santa Fe (BNSF). The recently inked partnership reports that “J.B. Hunt plans to increase its intermodal fleet by more than 40% to as many as 150,000 containers in three to five years.”

The partnership between J.B. Hunt and BNSF seems to be aimed at tightening the efficiency of the overall national supply chain while increasing each company’s operating capacities and capabilities. We are very bullish that this will prove to be a very fruitful and mutually beneficial deal going forward.

Additionally, given current macroeconomic and national supply chain sentiment and the company holding a fortified position in a competitive, margin-tight industry, we feel good about J.B. Hunt’s stock and the potential for a gradual increase in share price over the next few years (and decades).

We currently give the company a “buy” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.

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