Earnings Analysis: J.B. Hunt Transport Services Inc.

Oct.12.12 | About: J.B. Hunt (JBHT)

J.B. Hunt Transport Services Inc. (NASDAQ:JBHT) reports preliminary financial results for the quarter ended 2012-09-30.

J.B. Hunt Transport Services Inc. recently reported its preliminary financial results based on which CapitalCube provides a unique peer-based analysis of the company. Our analysis is based on the company's performance over the last twelve months (unless stated otherwise).

J.B. Hunt Transport Services Inc.'s analysis versus peers uses the following peer-set: Old Dominion Freight Line Inc. (NASDAQ:ODFL), Werner Enterprises Inc. (NASDAQ:WERN), Con-Way Inc. (NYSE:CNW), Knight Transportation Inc. (NYSE:KNX), Swift Transportation Co. (NYSE:SWFT), Roadrunner Transportation Systems Inc. (NYSE:RRTS) and Arkansas Best Corp.(ABFS). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Quarterly (USD million) 2012-09-30 2012-06-30 2012-03-31 2011-12-31 2011-09-30
Revenues 1,295.8 1,255.1 1,165.9 1,204.9 1,171.3
Revenue Growth % 3.2 7.7 (3.2) 2.9 1.9
Net Income 78.2 80.5 67.7 72.6 68.7
Net Income Growth % (2.7) 18.9 (6.7) 5.7 4.5
Net Margin % 6.0 6.4 5.8 6.0 5.9
ROE % (Annualized) 41.9 47.9 45.2 54.5 50.1
ROA % (Annualized) 13.0 13.7 11.8 13.1 12.8
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Valuation Drivers

J.B. Hunt Transport Services Inc.'s current Price/Book of 8.2 is about median in its peer group. J.B. Hunt Transport Services Inc. achieved a better operating performance than the median of its chosen peers (ROE of 46.8% compared to the peer median ROE of 14.5%) and the market still expects faster growth from it than from those peers (PE of 22.0 compared to peer median of 16.9).

The company has a successful operating strategy with above median net profit margins of 6.1% (vs. peer median of 4.4%) and relatively high asset turns of 2.1x (vs. peer median of 1.7x). This suggests that the company has a dominant operating model relative to its peers. J.B. Hunt Transport Services Inc.'s net margin continues to trend upward and is now over one standard deviation above its five-year average net margin of 5.3%.

Economic Moat

J.B. Hunt Transport Services Inc.'s revenues have changed in-line with its peers (year-on-year change in revenues is 19.3%) but its earnings have lagged (annual reported earnings have changed by 28.7% compared to the peer median of 101.2%), implying that the company has less control over its costs relative to its peers. J.B. Hunt Transport Services Inc. is currently converting every 1% of change in revenue into 1.5% change in annual reported earnings.

J.B. Hunt Transport Services Inc.'s return on assets is above its peer median both in the current period (13.0% vs. peer median 7.6%) and also over the past five years (10.6% vs. peer median 6.1%). This performance suggests that the company's relatively high operating returns are sustainable.

The company's gross margin of 22.9% is around peer median suggesting that J.B. Hunt Transport Services Inc.'s operations do not benefit from any differentiating pricing advantage. However, J.B. Hunt Transport Services Inc.'s pre-tax margin is more than the peer median (9.8% compared to 7.3%) suggesting relatively tight control on operating costs.

Growth & Investment Strategy

J.B. Hunt Transport Services Inc. has grown its revenues faster than its peers (6.6% vs. 2.9% respectively for the past three years). The market also sees relatively higher long-term growth prospects for the company, giving it a better than peer median PE ratio of 22.0. Overall, we classify the company's growth prospects as superior relative to its peers.

J.B. Hunt Transport Services Inc.'s annualized rate of change in capital of 4.2% over the past three years is higher than its peer median of 1.8%. This investment has generated an above peer median return on capital of 16.0% averaged over the same three years. Evidently, the relatively high capital investment was successful given the relatively strong growth in its returns.

Earnings Quality

J.B. Hunt Transport Services Inc. has reported relatively strong net income margin for the last twelve months (6.1% vs. peer median of 4.4%). This strong margin performance was accompanied by a level of accruals that was around peer median (5.4% vs. peer median of 6.2%) suggesting that the reported net income is supported by a reasonable level of accruals.

J.B. Hunt Transport Services Inc.'s accruals over the last twelve months are positive suggesting a buildup of reserves. However, this level of accruals is also around the peer median and suggests the company is recording a proper level of reserves compared to its peers.

Trend Charts

Company Profile

J.B. Hunt Transport Services, Inc. is a transportation, delivery, and logistics company. The company together, with its wholly-owned subsidiaries, provides safe and reliable transportation and delivery services to a diverse group of customers throughout the continental United States, Canada, and Mexico. Its products and services include the transportation of full truckload-containerized freight, revenue equipment, labor, and systems and delivery services. The company operates through four segments: JBI, Dedicated Contract Services (DCS), Full-Load Dry-Van (JBT) and Integrated Capacity Solutions (ICS). J.B. Hunt Transport Services was founded by Johnnie Bryan Hunt and Johnnie D. Hunt on August 10, 1961 and is headquartered in Lowell, AR.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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