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Stock Analyst Update

J.B. Hunt's Third-Quarter Revenue Mostly In Line

Higher costs and soft contract rates temper margins, and we view shares as overvalued today.


Narrow-moat intermodal specialist  JB Hunt's (JBHT) third-quarter consolidated revenue grew 9% year over year. Total revenue before fuel surcharges was up 8%, mostly in line with our expected run rate. Intermodal loads and core pricing trends are tracking our expectations, as the intermodal landscape has seen gradual improvement in recent quarters. We continue to expect the competing full-truckload industry to see a healthier supply/demand balance in the year ahead on widespread adoption of electronic logging devices, which will lower productivity for a large swath of the small carrier base. Firming truckload capacity should reinvigorate truck-to-rail conversion activity for J.B. Hunt and peers like Schneider National and Hub Group, particularly in the eastern half of the United States where shorter-haul conversion opportunities are most abundant.  

Profitability came in modestly below our expectations, partly because of transaction costs from the tuck-in Special Logistics Dedicated deal and network disruption from the Southeast hurricanes. Additionally, the firm continues to see fallout from lingering soft contractual pricing across its intermodal, for-hire truckload, and truck brokerage operations linked to abundant truckload capacity since early 2016. On the positive side, capacity is showing signs of firming due in part to large carriers’ fleet reductions this past year. Also, the influx of trucks to Southeast freight lanes (driven by higher-priced hurricane-related cargo opportunities) has further tightened supply; in fact, spot rates have risen dramatically in recent months. We expect Hunt to see solid profitability gains in 2018 as operating conditions improve. We haven’t materially altered our longer-term revenue and margin assumptions, but we have increased our fair value estimate to $85 per share from $84 on the time value of money since our previous update. The shares are trading in overvalued territory.

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Matthew Young does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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