Neutral Stance on J.B. Hunt


On Feb 3, 2014 we maintained our Neutral recommendation on J.B. Hunt Transport Services Inc. (JBHT) based on enhanced equipment velocity, accelerated fleet conversion and geographic expansion. 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 85% to the total revenue in 2013 – are well poised for growth with strong market fundamentals. For the coming months, the company expects 10–14% intermodal volume growth as market fundamentals here 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 its existing customers.
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 is focusing on the high-priced business to reach its 2014 revenue growth target. 
Meanwhile, with respect to the Integrated Capacity Solutions (:ICS) segment, higher demand from customers, opening of new branches and technological investments will boost the company’s growth going forward. The company expects 18–20% revenue growth from the ICS segment in 2014.
Despite such positives, management believes that revenue per load growth for 2014 will be restricted and could decline in the first quarter due to weather-related costs. Persistence of high competition within ICS remains the primary reason for the company’s expectation of an operating margin decline in 2014.
Moreover, J.B. Hunt’s trucking segment is continuously being affected by the ongoing truck to rail conversion. Although transformation of the segment has started we believe a turnaround will take quite some time to materialize. Further, higher driver wages, firmness in contractual pricing and continued focus on investments can temper J.B. Hunts’ margin.
Other Stocks to Consider
Sector stocks likely to perform impressively in the coming months include Trinity Industries Inc. (PATR), Covenant Transportation Group Inc. (CVTI) and American Railcar Industries Inc. (ARII). TRN and CVTI currently carry a Zacks Rank #1 (Strong Buy) while ARII carries a Zacks Rank #2 (Buy).
Read the Full Research Report on JBHT
Read the Full Research Report on CVTI
Read the Full Research Report on PATR
Read the Full Research Report on ARII

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