J.B. Hunt Transportation Services could hit new highs by year end

Key points

• J B Hunt Transportation Services had a rough quarter, but the outlook for rebound is healthy. 

• Business is down compared to last year but stabilizing well above the 2019 levels. 

• Capital returns will continue to flow while the analysts drive the market. 

• 5 stocks we like better than J B Hunt Transport Services

As weak as the Q2 results are, shares of J B Hunt Transportation Services (NASDAQ:JBHT) are moving higher and could set a new all-time high by the end of the year. The results are weak due to market conditions that have corrected from pandemic-inspired levels. However, the takeaway from the report is that the company has grown since 2019, and business is stabilizing well above those levels.

This has the company set up for leverage when business begins to pick up, which could come soon. The odds of a recession in 2023 have been significantly reduced (and details within the report are deflationary for the economy), which may lead to reinvigorated economic activity as the 2nd half wears on.

Regardless, J B Hunt is a high-quality business with healthy capital returns and an outlook for long-term growth. 

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J B Hunt has weak quarter: Shares move higher

J B Hunt was expected to have a weak quarter, but the Q2 results are even weaker than expected. The revenue of $3.13 is down 18.5% compared to last year and missed the consensus by 485 basis points. The miss is due to a decline in volume in most segments that was compounded by a double-digit decline in revenue per load in all segments that count.

The good news is that revenue is up nearly 39% compared to 2019, and the earnings gains are even larger. Intermodal, the largest segment by revenue, shrank 19% on a 13% decline in revenue per load, while DCS, the 2nd largest, shrank by a smaller 2%. Integrated Capacity Solutions declined by 43%, Truckload by 16%, and Final Mile Services by 19%. 

Lower revenue per load, lower volume, higher costs, and higher interest expense impacted the margin. Operating income fell by 23% compared to the top-line -18.5% to leave the GAAP earnings at $1.81. This is down 25% and 570 bps worse than the Marketbeat consensus but offset by the pre-pandemic comparison.

EPS is up 47% compared to 2019 and is expected to remain solid. This is helping to sustain capital returns and a healthy balance sheet. 

The company levered its revolving credit facility to shore up its cash balance over the quarter, but there is little change to the balance sheet. The company’s total liabilities are up, but long-term debt is down, and the increase in cash reserves balances it out. The takeaway is that the dividend remains reliable if a small payout at 0.9% of share prices.

The dividend is compounded by share repurchases which totaled $53 million in the quarter. That’s worth about 0.25% of the pre-release market cap, with more than $465 million or about 2.4% of the market cap left. 

The analysts are supporting JBHT stock 

The trend in analysts’ sentiment was favorable ahead of the Q2 release, and that has not changed following it. Marketbeat.com picked up 4 revisions within the 1st 18 hours of the release, and they are all buying the stock. The consensus rating is a Moderate Buy which has held steady over the past year.

The price target is down compared to last year but firming compared to last month and last quarter due to upward revisions. Three of the 4 new targets were revised higher, and the 1 standout was lowered to a level consistent with the consensus target.

The takeaway is that the analysts may not lead the stock to a new high, but they are supporting the market, and the institutions have been buying on balance. 

The price action in JBHT stock wobbled immediately after the results, but bulls bought the dip and drove it higher in after-hours trading. The market is more than 2.0% ahead of the open following the release and suggests upward movement will continue. The move is consistent with a bullish signal that can be seen on the monthly, weekly, and daily charts.