J.B. Hunt's Dull Financials Fail To Impress

Edited by Juna Yanoyan

J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT) is among the top surface transportation firms in North America according to revenue. The firm’s primary operating segments include: intermodal delivery, which uses rail carriers for the underlying linehaul movement (58% of sales); dedicated contract services, which provide customer-specific fleet needs (23%); full-truckload hauling (11%); and freight brokerage (8%).

VALUATION PEAKS

JBHT recently closed at $54.71. The stock is trading at approximately -10.35 percent of the 52W high and 46.44 percent of the 52W low. The stock is exhibiting bullish activity as it hit 2.54% above the 200-day simple moving average.

The company is currently trading at a P/E of 22.70 times compared to industry average of 14.53 times. JBHT reports forward P/E of 18.24 times, the third highest in the industry just after Patriot Transportation Holding Inc. (PATR) and USA Truck Inc. (USAK), at 28.78 times and 24.00 times respectively. Stock valuation is pivotal to assess the earning potential and perceived value of the company. So far, JBHT passed this test remarkably. JBHT shares dropped after release of last quarter’s reports but, the outlook has improved since then.

FINANCIALS

The company’s annual earnings growth rate over the past five years is 7.86 percent. EPS increased by 34.92 percent this year while, EPS improved by 25.78 percent compared to the same quarter last year.

The company’s total debt to equity ratio is 0.95 and long-term debt to equity ratio is 0.81; both are well above the S&P average but lower than the industry’s average. Current ratio is at 1.03. Total assets increased by a meager 1.83 percent within the year. Total liabilities decreased by only 2.40 percent.

Total net cash flows increased by 83 percent during the past two quarters. Cash flow from operating activities increased by 78.15 percent this year, cash from investing decreased by -50.97 percent, and -30.29 percent dip in cash from financing. The result of the company’s cash flow from operating is a good position since JBHT is a services company. Overall, the company maintains safe but lackluster financials.

RECENT NEWS

October 8, 2012: J.B. Hunt Transport (NASDAQ: JBHT) are expected to report earnings on Oct 11.

September 26, 2012: Moody’s raises ratings for JB Hunt citing strong cash flows, moderate debt.

September 12, 2012: Bank of America upgrades J.B. Hunt Transport Services to Buy; 3Q fears overdone.

RECOMMENDATION

For next 6 months, we are NEUTRAL on J.B. Hunt Transport Services Inc. The company has demonstrated a pattern of bullish technical signs but weak fundamental performance.  JBHT benefits from its intermodal shipping as well as its relatively young tractors which cuts downtime and maximizes efficiency. On the other hand, JBHT has a relatively narrow customer list. Sluggish economy can also impact revenue and regional trends can affect business segments. JBHT also showed weak market during Christmas peak season.

For trading we suggest a long straddle at prices close to the current price as the stock moves to a narrow range for the last 30 days, and ahead of the earnings announcement we expect volatility to resurface.