The economic recovery has really helped J B Hunt Transport Services Inc (NASDAQ:JBHT). The trucking company has been a growth machine since the Great Recession, with revenue increasing from $3.2 billion in 2009 to an over $6 billion in 2014. Due to rising asset utilization, J.B. Hunt Transport Services’ operating margin has increased from 7.7% in 2009 to 9.2% in 2010, 9.8% in 2011, 10.3% in 2013, and 10.2% in 2014. Shares of J.B. Hunt Transport Services have almost tripled in the same interval, rising from $30 per share in 2009 to $84 a share.
With the economy firing on all cylinders, there is every reason to believe that J.B. Hunt Transport Services’ growth will continue. Trucking demand is economically dependent. When consumers are confident, they buy more discretionary items from Amazon and other stores that require shipping. The increasing shipping demand increases trucking demand. Because the demand for trucking rises during an economic recovery, industry truck utilization has increased from 85% in 2010 to 95% in 2015. The demand for trucking should continue rising, with J. B. Hunt management expecting industry truck utilization to rise close to 100% by 2016. Because of the economically favorable tailwinds, analysts expect J. B. Hunt Transport Services’ earnings to increase by an average of 14.82% a year over the next 5 years.
Hedge funds have been bullish on J B Hunt Transport Services Inc (NASDAQ:JBHT). Nine out of J.B. Hunt’s top ten hedge fund holders either increased their positions or established new positions in the first quarter. Balyasny Asset Management, Scopus Asset Management, Park Presidio Capital, Dialectic Capital Management, and Point72 Asset Management all established new positions between January and March 31 while Crestwood Capital Management, Force Capital, Millennium Management, and Sandler Capital Management all increased their positions in the first quarter. The one hedge fund that decreased its position did so modestly. Sirios Capital Management decreased its position by just 7% to 167,765 shares.
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J.B. Hunt Transport Services is not cheap. The stock trades at a forward PE of 20.02 versus the S&P 500’s forward PE of 18 and Landstar System’s forward PE of 17.76. J.B. Hunt Transport Services’ EV/EBITDA of 11 is also higher than Landstar System’s 10.59. Although it isn’t cheap, J.B. Hunt Transport Services deserves its premium, as it is the industry leader with strong growth prospects. J. B. Hunt Transport Services management has done a great job executing. The company makes very effective use of its capital, with a return on equity of 39.5% and a return on asset of 14.3%.
On July 17, J. B. Hunt reported Q2 profits that slightly missed analyst expectations. Lower crude prices hurt the company, as lower crude prices meant a lower fuel surcharge that lowered revenues and EPS. Intermodal demand was also slightly lower than expected.
While the changing fuel surcharge and future federal regulations that might limit skilled labor will present challenges, J B Hunt Transport Services Inc (NASDAQ:JBHT)’s future will be profitable as long as the U.S. economy continues to grow. If EPS can grow by 14.8% a year for the next three years, J. B. Hunt Transport Services will earn in $5.48 per share in 2018. Assume a price to earnings multiple of 20 and JB Hunt Transport services stock will be $109.6 per share in three years.
Disclosure: None
