B. Hunt Transport Services Inc.
) remains well established on its growth trajectory given the
underlying market trends that bode well for most of its
segments, especially Intermodal and Dedicated Contract
Despite a challenging economic outlook for the near term,
we believe the changes in the freight transportation market,
owing to truckload to intermodal conversion, will emerge as key
growth drivers. These factors will not only drive solid
pricing across all segments, but will also foster strong volume
In the recently concluded second quarter, J.B. Hunt's earnings
of 67 cents per share were in line with the Zacks Consensus
Estimate and improved from 53 cents in the year-ago quarter. The
company's revenue and operating income also grew 9% and 21%,
We believe J.B. Hunt is poised to benefit from its two largest
segments, Intermodal and DCS, which contributed more than 80% of
the company's total revenue in the second quarter. We also believe
that Intermodal is poised to gain market share, particularly in the
East given its superior services, large fleet of equipment and
cross selling opportunities with other business units like
Integrated Capacity Solutions (ICS). Its favorable terms with other
railroad service providers will help in winning new contracts.
Though the Intermodal segment might face a more challenging
business environment, we are optimistic about its growth as it
continues to gain market share from the trucking segment.
The other segment, DCS, is evolving into a highly specialized
fleet with a greater focus on final mile (i.e., residential)
delivery, which is expected to achieve double-digit revenue growth
in the long term. We believe that J.B.Hunt will continue to expand
its DCS segment by developing broader portfolio offerings, which
provide services to both large and small shippers. The company is
focused on increasing truck productivity by concentrating on more
profitable businesses and reducing the less profitable ones, which
could result in slow growth for DCS.
Volatility in fuel prices is the major risk to J.B. Hunt. The
company's fuel surcharge revenue program enables it to recover the
majority of higher fuel costs from customers. Most of these
programs are adjusted automatically on a weekly basis depending on
the cost of fuel. However, there can be timing differences between
a change in the fuel cost and fuel surcharges billed to customers.
In addition, the company incurs additional costs when fuel price
increases cannot be fully recovered due to engines being idled
during cold or warm weather and empty or out-of-route miles that
cannot be billed to customers.
The truck industry is highly exposed to self-insured liability.
We believe future liability insurance may exceed the historical
level and remain detrimental to earnings. Additionally, the
changing environment in the trucking industry due to
highway-to-rail conversion also has an adverse impact on the
company's truck segment. Plus, J.B. Hunt remains exposed to
competition from transportation and logistics companies like
YRC Worldwide Inc.
Given the above pros and cons, we are currently maintaining our
long-term Neutral recommendation on J.B. Hunt with a Zacks Rank #3
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