Founded in 1961, J.B. Hunt Transport Services Inc. (NASDAQ:JBHT) grew from being a truckload carrier to become the largest intermodal provider in the United States, followed by Hub Group Inc. (NASDAQ:HUBG) and Pacer International Inc. (PACR). It is also one of the top surface transportation firms in the U.S. in terms of revenue. The company has an immense fleet of 65,000 containers and 4,000 owned tractors, which depicts the scale of its drayage capabilities. The firm contracts with the major rail carriers for the transportation of its owned containers. Apart from its core intermodal segment, which generates 62% of total sales, it also offers complementary operations, namely dedicated contract carriage, asset-light highway brokerage and logistics solutions. The firm has roughly a 24% market share in a $15 billion industry.
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- JBHT 15-Year Financial Data
- The intrinsic value of JBHT
- Peter Lynch Chart of JBHT
The Network Effect
J.B. Hunt boasts a large customer base that garners the firm considerable buying power, providing its customers with greater rail capacity discounts. In turn, its huge fleet of containers and tractors represent a valuable source of capacity, which is empowered by the firm’s solid partnerships with all major rail carriers for the underlying line-haul movement of its freights. Moreover, J.B. Hunt represents an appealing source of cargo given its capacity to aggregate fragmented demand among its vast array of customers.
Altogether, these competitive advantages generate relatively high barriers to entry, since replication of its networks and capabilities by smaller providers would be hard to achieve. And most importantly, these traits create a compelling value proposition that is reinforced by a favorable secular trend in the intermodal segment.
A Market on the Rise
Significant improvements in service levels from the rails and variable fuel costs are some of the factors producing a growing demand for multimodal solutions. Moreover, shippers are increasingly focused on enhancing supply chain efficiency while rising government regulations are causing trucking capacity to tighten. Consequently, an active movement in truckload-to-intermodal conversion is taking place, augmented by the rails’ expansion of its short haul intermodal services in unpenetrated regions.
A Compelling Outlook
Persistent favorable pricing trends stemming from a tight capacity environment add to J.B. Hunt’s intermodal market share gains from long-haul trucking. In fact, the company expects 10% to14% intermodal volume growth in the near term, derived from the highway to intermodal conversion and from larger volumes contributed by existing customers. Moreover, the company is expanding its Eastern intermodal network, thus providing major load growth opportunities for the future.
Moving forward, the firm expects to generate a revenue expansion of 10% to 12% and an operating income growth of 11% to 15% in 2014, mainly driven by its intermodal segment and its dedicated contract services (which represent 23% sales).
On the Growth Track
J.B. Hunt’s stock trades at 25.1 its trailing earnings compared to the industry average of 36.8, and its earnings per share showcased an outstanding growth of 35.10% compared to its peers’ 8.50% average. Its return on equity is also remarkable, reaching 39.20% against its rivals’ 6% median. And its asset-light business model continues to allow great returns on invested capital, which hit 38% against an industry median of 15.6%.
Furthermore, the company remains committed to enhancing shareholders’ value through continuous share repurchases and dividend payments. Consequently, although investment guru Ray Dalio (Trades, Portfolio) recently sold out his holdings in the company, I believe J.B. Hunt is a compelling investment opportunity that holds great growth potential.
Disclosure: Vanina Egea holds no position in any stocks mentioned.