J.B. Hunt Transport (NDQ: JBHT)
Originally recommended by Tom Slee on May 18/14 (#21419) at $76.56. Closed Thursday at $82.11. (All figures in U.S. dollars.)
Background: This company is in the freight transportation business, providing truckload, intermodal, and contract carriage facilities to customers across a diverse set of industries in the U.S., Canada, and Mexico. It has been in business more than 35 years and specializes in handling imports through its “shore to door? service. Major customers include the Burlington Northern and Norfolk Southern railways.
Recent developments: J.B. Hunt reported good first-quarter results, with a modest increase in revenue and a big jump in earnings. Net earnings came in at $91.9 million ($0.78 per share, fully diluted) as compared to $68.7 million, ($0.58 per share) in the same period of 2014.
Operating revenue, excluding fuel surcharges, increased 10% year-over-year. Intermodal (JBI) load growth was 6% over first quarter 2014 levels while operating income totaled $155 million, up from $117 million last year.
All segments of the company’s operations showed improvement. Trucking revenue was soft, down 1% to $91 million, however operating income improved 248% to $8.5 million. Management cited higher rates, rapidly declining fuel prices, lower equipment maintenance costs, lower insurance and claims costs, and improved asset utilization for the improvement in operating revenue.
The company continues to buy back its stock in the open market, having purchased 79,500 shares at a cost of $6.4 million during the quarter. However, that was much reduced from the fourth quarter of 2014 when the company bought back about 615,000 shares at a cost of $50 million.
The dividend was increased by $0.01 to $0.21 per quarter ($0.84 a year) effective with the February payment.
On June 30, J.B. Hunt was promoted to the S&P 500, a move that should give a boost to the stock as it is added to index portfolios.
Conclusion: The basic story is still intact and the company has excellent growth potential. Our target price is $88 but RBC Capital Markets recently raised its target to $105 over the next 12 months.
“Intermodal volumes are poised to make a return in a meaningful way, and the industry is doing a commendable job of taking rates higher, which it hasn’t done in the past,” analyst John Barnes said in a research report. “We see many favorable earnings catalysts for the stock in the future, which should drive outperformance compared to the group.”
Action now: Buy.
AT&T ((NYSE:T)
Originally recommended on May 13/12 (#21218) at $33.59. Closed Thursday at $35.73. (All figures in U.S. dollars.)
Background: AT&T is the largest telecom company in the U.S. with more than 120 million wireless customers. It provides services in some 225 countries and territories and employs 243,000 people.
Recent developments: First-quarter results were disappointing. Revenue showed only a small gain of 0.3% over the previous year to $32.6 billion. Net earnings came in at $3.2 billion ($0.61 per share), down from $3.7 billion ($0.70 per share) in the same period last year.
Adjusting for $0.03 per share for voluntary employee separations, $0.04 per share for merger and integration-related expenses, and a $0.05 per share gain from a tax item, earnings per share were $0.63 compared to an adjusted $0.71 in the year-ago quarter, which included about $0.03 per share from since divested assets. Free cash flow was $2.8 billion.
The company tried to put a good face on the results by emphasizing strong wireless subscriber gains in its press release, and indeed these may pay off on the bottom line down the road. AT&T added about 1.2 million branded smartphones to its subscriber base during the period, about 700,000 of which were prepaid. The company reported its best-ever first-quarter wireless postpaid churn at 1.02%.
Conclusion: The share price has shown some strength lately but that seems to have been driven more by the yield than by the company?s growth potential, which looks modest at best right now. The stock pays a quarterly dividend of $0.47 per share ($1.88 annually) to yield about 5.3% at the current price. That?s a very attractive payout from a company that appears to have low downside risk.
