Investors seeking to preserve capital in a volatile environment might consider large-cap stocks such as J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT) a safer option. Risk-averse investors who are attracted to diversified streams of revenue and strong capital returns tend to seek out these large companies. However, its financial health remains the key to continued success. I will provide an overview of J.B. Hunt Transport Services’s financial liquidity and leverage to give you an idea of J.B. Hunt Transport Services’s position to take advantage of potential acquisitions or comfortably endure future downturns. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into JBHT here.
JBHT’s Debt (And Cash Flows)
Over the past year, JBHT has ramped up its debt from US$1.1b to US$1.2b , which accounts for long term debt. With this rise in debt, the current cash and short-term investment levels stands at US$7.6m , ready to be used for running the business. Additionally, JBHT has produced cash from operations of US$1.1b over the same time period, leading to an operating cash to total debt ratio of 94%, meaning that JBHT’s operating cash is sufficient to cover its debt.
Can JBHT meet its short-term obligations with the cash in hand?
At the current liabilities level of US$1.4b, it appears that the company has been able to meet these obligations given the level of current assets of US$1.5b, with a current ratio of 1.11x. The current ratio is the number you get when you divide current assets by current liabilities. For Transportation companies, this ratio is within a sensible range as there's enough of a cash buffer without holding too much capital in low return investments.
Can JBHT service its debt comfortably?
JBHT is a relatively highly levered company with a debt-to-equity of 55%. This isn’t uncommon for large companies because interest payments on debt are tax deductible, meaning debt can be a cheaper source of capital than equity. Since large-caps are seen as safer than their smaller constituents, they tend to enjoy lower cost of capital. We can test if JBHT’s debt levels are sustainable by measuring interest payments against earnings of a company. Net interest should be covered by earnings before interest and tax (EBIT) by at least three times to be safe. In JBHT's case, the ratio of 16.94x suggests that interest is comfortably covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes JBHT and other large-cap investments thought to be safe.
JBHT’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for JBHT's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research J.B. Hunt Transport Services to get a better picture of the large-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for JBHT’s future growth? Take a look at our free research report of analyst consensus for JBHT’s outlook.
- Valuation: What is JBHT worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether JBHT is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
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