Seeking Alpha
, YCharts (577 clicks)
Long/short equity, dividend investing, value, deep value
Profile| Send Message|
( followers)  

Trucking company J.B. Hunt's (NASDAQ:JBHT) recent earnings painted an awfully rosy picture of the transportation industry these days, and that might make trucker Old Dominion Freight Line (NASDAQ:ODFL) a little nervous ahead of its own results Thursday, April 26. It’ll be easy to disappoint; not so easy to impress. It’s a nice set-up for what long-term investors call a buying opportunity.

Certainly, both of these big haulers have been going great guns recently, although they arrive at success through different specialties. J.B. Hunt, with a $6.7 billion market cap, works with companies that fill an entire trailer, or even entire fleets, before shipping. Old Dominion is big in the “less-than-truckload” business, in which any single trailer is filled with delivers for numerous clients. It has a market cap of roughly $2.8 billion. Revenues increased at both companies more than 40% in the past two years, and profits are up even more – a lot more.

(click to enlarge)JBHT EBITDA TTM Chart

JBHT EBITDA TTM data by YCharts

Investors already noticed. Shares of J.B. Hunt doubled in the past two years. Old Dominion investors have seen about 50% gains despite announcing plans in February to offer another $100 million in shares.

(click to enlarge)JBHT Chart

JBHT data by YCharts

The recession a few years ago hit the trucking industry particularly hard, so we should take those outsized profit gains with a bit of salt. Valuations on the shares are kind of outsized now, too, and YCharts Pro gives merely average (J.B. Hunt) or below average (Old Dominion) scores for share price value based on past performance. (Both companies get good scores for fundamentals.) So are the big gains done, or are there enough happy days ahead for these companies to justify buying their already-popular, pitiful-or-absent dividend shares now?

Hunt’s first quarter earnings report make those shares awfully tempting. Revenue increased 16.5% year-over-year to $1.17 billion, and earnings per share were up 43% to 57 cents. It’s doing a booming inter-modal business in which it carries around containers that transfer seamlessly onto trains and ships. Its prices are up. Its operating profit margin was up nearly 6.5% despite those notoriously high prices at the fuel pumps.

Investors are expecting great things from Old Dominion results, too. Forecasts call for a roughly 40% gain in earnings per share to 53 cents, paired with a little less than 20% gain in quarterly revenues to $502.5 million. Lately, Old Dominion has managed to stretch profit margins even beyond J.B. Hunt’s, which is in a less competitive segment. Old Dominion has been high in this measure for years, which has helped build its reputation as one of the best-run logistics companies out there.

(click to enlarge)JBHT Operating Margin TTM Chart

JBHT Operating Margin TTM data by YCharts

Rising fuel costs continue to threaten these companies’ profits.

(click to enlarge)US Retail Diesel Price Chart

US Retail Diesel Price data by YCharts

Logistics analysts, however, generally expect surcharges and price hikes to make up the difference at J.B. Hunt and Old Dominion. The bigger threats to investors now are the big valuations on the shares. J.B. Hunt trades at about 25 times earnings; Old Dominion at about 20 times. Neither looks like a bargain.

(click to enlarge)JBHT PE Ratio Chart

JBHT PE Ratio data by YCharts

On a broader note, the sight of lots of big trucks hauling corporate stuff across country and beyond is usually a very good sign for the economy and its recovery, which is of course the key to good times for this industry and many others. Investors looking for a way into either company might welcome just a little bad news.

Source: It Seems Too Simple: 2 Trucking Stocks That Crush The Market