It All Begins With Trucking
Old-school Dow Theorists will tell you that everything economic begins and ends with trucking. If the economy is gearing up for expansion you’ll it first in the trucking data. If the economy is preparing for a slowdown you will see that in the data as well. What we’re seeing in the data now is that trucking is hitting a bottom and positioned for a fairly strong rebound. The combination of rising truckload counts and rising rates is a recipe for rising revenue and earnings and that is a recipe for rising share prices.
JB Hunt (NASDAQ: JBHT) is not a pure-play on trucking, far from it, but trucking is at the core of what it does. JB Hunt is a growing, consolidated, integrated shipping company with a focus on Intermodal and end-to-end solutions. It includes a robust trucking segment but also partial-load, logistics support, and other solutions necessary to today’s business and industry. JB Hunt just reported earnings and confirmed that yes indeed there is a rebound in trucking underway.
JB Hunt Beats On Strength In The Trucking Segment
JB Hunt was not immune to the COVID-19 pandemic but it was close. The company saw a -4.9% decrease in revenue that, when adjusted for this year’s non-existent fuel surcharge, came closer to -0.5%. The company saw weakness in most segments but less than expected and what there was, was offset by trucking. Revenue for the segment increased 9.0% on a YOY basis, 13.0% excluding fuel surcharges, due to a 17% increase in load volumes. Notably, revenue per load mile is down from the previous year but we knew that. The salient point is that load-mile costs are bottoming and expected to rise into year-end.
This is from Bank of America’s second-half forecast for the trucking industry. "Our proprietary bi-weekly BofA Truck Shipper Survey Rate Indicator (measuring shippers’ views on the direction of truck rates) is at 54, up 12% sequentially and double its trough, suggesting pricing expectations continue to accelerate. With our Demand Indicator (0-3 month demand outlook), posting its largest positive year-year change since June 2018, coupled with our Capacity Indicator declining to 52 from 67, its lowest level since November 2018, we see the building blocks in place for spot rates to keep rising into 2H."
Getting back to JB Hunt’s results, revenue fell -5% from last year but beat consensus by a full 5.5%. The strength carried through to the bottom line resulting in GAAP EPS of $1.14. That’s $0.29 better than consensus and sets the company up to soundly beat the FY 2020 consensus. The YTD results are already running about 50% of consensus figures, figures that have been rising in the last 30 days, with the company’s strongest quarters ahead of them.
JB Hunt The Dividend, It Isn’t Much But It Is Oh So Safe
JB Hunt has a dividend but, frankly, it’s not really the dividend you buy this company for, it’s the growth. That said, the stock is yielding about 0.80% and comes with a high-level expectancy for regular future increases. The payout ratio is super low at 25% and backed up by a fortress-like balance sheet. The company carries some debt but it’s a small amount and coverage ratios are very high. In terms of the history, JB Hunt has increased its distribution for 15 years putting it on track for Dividend Aristocrat status.
The company has a buy-back program
in place as well but did not repurchase any shares over the last quarter. That decision helped preserve capital bringing the company’s cash position to $275 million. There is still $520 million left in the program but no indication of when or if repurchases will resume.
JB Hunt The Technical Outlook: Bullish
You wouldn't think there'd been a bottoming in the trucking industry, looking at the chart of JBHT, but there was. This stock posted one of the strongest rebounds post-COVID-correction of any stock in the market. Now trading more than 75% above its correction bottom this stock is poised to keep rising. The indicators are in support of this move and, although stochastic is in overbought territory, could lead to another prolonged updraft in prices. Today's news has the stock up another 3.0% in early trading and sitting at fresh all-time highs. Investors may want to wait for a pullback in prices before pulling the trigger but there is no guarantee one will come, or that it will significantly lower prices when it does.
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