On Sep 27, 2013 we maintain our Neutral recommendation on
J.B. Hunt Transport Services Inc.
) based on enhanced equipment velocity, accelerated fleet
conversion and branching out in various locations. The
transportation service provider holds a Zacks Rank #3 (Hold).
Why Kept Neutral?
Two of the company's segments - Intermodal and Dedicated
Contract Services (DCS) that contributed more than 80% to the
total revenue in 2012 - are well poised for growth with strong
market fundamentals. For the coming months, we expect
double-digit intermodal volume growth as intermodal market
fundamentals will be stronger than trucking.
J. B. Hunt expects the major chunk of volume growth to come
from new contracts awarded due to the ongoing highway to
intermodal conversion and a small part to be contributed by the
DCS business continues to provide additional growth
opportunities as it expands its footprint into a unique local
delivery business, benefiting from the uptrend in e-commerce. J.
B. Hunt currently operates in less than 2.0% of the current
market, which provides ample growth opportunities for market
Additionally, the company is ramping up its fleet conversion,
which will likely be beneficial going forward. Meanwhile, the
company believes that selling intermodal services through ICS
will aid double-digit revenue growth, leading to market share
gains and enhanced profitability.
Despite such positives, persistence of high competition within
ICS remains detrimental to the company's target of 6% operating
margin expansion. Moreover, J.B. Hunt's trucking segment is
continuously being affected by the ongoing truck to rail
In an attempt to boost its performance levels, the company
continues to upgrade equipment such as tractors, trailers,
containers and trucks. Moreover, continued focus on investments
can temper its margin. We also see cut-throat competition in the
industry, fuel price volatility, staff retention and insurance
liability as headwinds to J. B. Hunt.
Other Stocks to Consider
Other stocks within the sector that will likely perform
impressively in the coming months are
Patriot Transportation Holding, Inc.
American Railcar Industries Inc
Swift Transportation Co.
). PATR currently carry a Zacks Rank #1 (Strong Buy) while ARII
and SWFT carries a Zacks Rank #2 (Buy).
AMER RAILCAR (ARII): Free Stock Analysis
HUNT (JB) TRANS (JBHT): Free Stock Analysis
PATRIOT TRANSPT (PATR): Free Stock Analysis
SWIFT TRANSPORT (SWFT): Free Stock Analysis
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