Until the world has artificial intelligence automatically managing the supply chain end-to-end, in some Phillip Dick’s Electric Dreams-style society, consumers will depend on freight transport companies, of which J.B. Hunt Trasport Services Inc. (JBHT, Financial) is the best of the best.
Once heavily dependent on the capital-intensive truckload business, J.B. Hunt Transport has done a great job reducing its exposure to macroeconomic downturns, lowering the segment to 30% of sales from 60% a decade ago.
Today, J.B. Hunt is more of a marketing company for intermodal shipping (55% of revenue), forming excellent partnerships across the market with companies like Burlington Northern Santa Fe and Norfolk Southern (NSC, Financial). In fact, by some estimates, it has at least 25% of the $18 billion industry.
Intermodal shipping has some favorable long-term trends, including constraints on truckload capacity growth that should keep pricing stable and a switch from truck to rail to reduce costs. It’s also done a great job implementing new digital technology for online load management and carrier sourcing automation. J.B. Hunt has reached a scale where it would be very difficult for a smaller competitor to replicate its operations, which include 4,725 owned tractors and the industry’s largest fleet of 80,000 cube containers.
Financially speaking, J.B. Hunt has dramatically increased its sales, net income and book value over the last decade. At the same time, it has improved cash flow and bought back 15% of its shares outstanding. All this has made it much more valuable and the market has followed suit.
2009
Revenue: $3.2 billion
Income: $136 million
Book: $5.06
Trailing 12-month
Revenue: $8.6 billion
Income: $409 million
Book: $19.33
While December offered better prices on the company’s stock, over the long term, shares still have a long way to run. Additionally, although the limited pool of drivers is definitely a challenge right now, the future of freight is almost certainly going to be autonomous, putting Hunt in a great position for long-term profit.
In January, J.B. Hunt reported fourth-quarter revenue growth of 16.6% year over year, but missed expectations by 67 cents with earnings of 81 cents per share. Regardless, the company remains on track to earn over $6 per share in 2019 and over $7 per share in 2020. Using its historical price-earnings multiple (23), shares could likely reach $160 in the next couple of years.
Disclosure: I am not long or short JBHT.Â
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