Is It Time To Go on a Ride With J.B. Hunt?

By Ryan Guenette - September 6, 2012 | Tickers: CNW, JBHT, ODFL, SWFT, WERN | 0 Comments

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J.B. Hunt  (NASDAQ: JBHT) is a holding company which operates as a surface transportation and delivery service company catering to its vast portfolio of customers stretching throughout continental United States, Canada, and Mexico. Its products and services include the transportation of full truckload freight and other delivery services. Its delivery services are made possible by its vast network of cross-dock service centers located throughout continental United States.  J.B. Hunt employs 16,000, and is valued at $6.23 billion on the NASDAQ. Over the past year the company’s stock has risen 29.80%, vastly outperforming the S&P 500, which has risen only 15.44% during the same period. So is it time to go on a ride with J.B. Hunt?

Rock-Solid Fundamentals

In 2002, J.B. Hunt reported earnings per share of $0.33. In 2012, the average analyst consensus believes the company will derive $2.62 per share from its business operations. This represents a 693.94% increase in earnings over the course of a decade. Based on these statistics, J.B. Hunt’s compound annual growth rate (CAGR) is 23.02%, an impressive feat for a company of any size. Looking into the future, an annualized growth rate in the double digits is expected, but one in the twenties is not probable. J.B. Hunt’s sales have increased at a similar rate in the past, which is a sign of a company growing its top and bottom lines. Additionally, the company pays out a meager dividend which is a little safety cushion for investors. Currently, J.B. Hunt pays out an annual dividend of $0.56, which at the current price, puts the dividend as yielding 1.06%. This is up from 2011’s annual dividend of $0.52, and if further expected to expand into the future. By 2014, the street anticipates the dividend reaching $0.61 annually, which at the current price, would put the company’s dividend as yielding, 1.15%. From this we can see the company’s underlying financial strength, annualized double digit growth rate, and meager dividend.

The chart below displays J.B. Hunt’s sales, operating profit, net income, net margin, operating margin, earnings per share, dividend, and rate of dividend (the percentage of net income that is paid out in the dividend) over the coming years.

Pain at the Pump & Amazing Alliances

J.B. Hunt is a trucking company, and is highly affected by swings in gas prices. J.B. Hunt utilizes gas and other oil products to fuel the majority of its fleet. While some companies have begun to convert its fleet to run on natural gas, J.B. Hunt has only done this on a small scale. This dependence on gas prices results in an improvement in margins when gas is down, yet gas is a leading economic indicator. When demand for gas is down, the economy is not firing on all cylinders, yet when gas prices rise, there is more demand and economic activity. This has resulted in a correlation between J.B. Hunt’s share price and gas prices, as shown below.

Another aspect of J.B. Hunt’s business that is noteworthy is its wise decision to partner with railroads, rather than compete against them. J.B. Hunt handles the first and last parts of the delivery process, while it leaves the bulk of the transportation to the rails. This produces better margins for the company because transporting goods by rails is much cheaper than on the road.

J.B. Hunt is very much linked to the broader economic picture, flourishing in times of prosperity, and alleviating in times of downturn. The chart below displays just how closely related the share price of J.B. Hunt and the United States gross domestic product is.

Who Is the Industry’s Leader?

Compared to some of J.B. Hunt’s most prominent competitors, such as: Werner Enterprises  (NASDAQ: WERN), Swift Transportation  (NYSE: SWFT), Old Dominion Freight Line (NASDAQ: ODFL), and Con Way  (NYSE: CNW), J.B. Hunt relates moderately favorably.

In terms of growth, Old Dominion is the industry leader, while Swift is the industry laggard. All companies except for Swift and Old Dominion pay out dividends, with Con Way possessing the largest dividend, and Werner possessing the fastest growing dividend. In the fundamental ratio comparison, Swift is the industry bargain, while J.B. Hunt trades at a premium to its peers. When growth is taken into account, Con way trades at a bargain, while J.B. Hunt trades at a higher multiple than its peers, yet its ratio is still below the ideal ratio of 1. In the net profit margin comparison, Old Dominion stands out to the upside, while Con Way stands out to the downside.

The Foolish Bottom Line

Over the past year J.B. Hunt has been on an absolute tear, but still appears to have room to run. The company possesses incredible long-term financial resolve and an annualized double digit growth rate that is accelerated and is likely to continue into the future. J.B. Hunt’s dividend is not huge, but is decently sized and is a little icing on the cake. The company suffers from higher gas prices, but is highly correlated to prices due to the economic activity gas prices represent. J.B. Hunt understands the advantages of railroad transportation and has been smart enough to partner with them. The foolish bottom line is J.B. Hunt is like buying an ETF that tracks the United States gross domestic product, and is a company that investors want to go on a ride with.        

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