J.B. Hunt (JBHT) Hits 52-Week High: What's Behind The Rally?

Shares of J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT) scaled a 52-week high of $129.74 on May 21, before retracing a bit to close the session at $128.10. Notably, the company has performed impressively in a year’s time. While the stock has surged 52%, the industry rallied 43.1%.

Lets delve deep to unearth the factors responsible for the impressive price performance.

J.B. Hunt is gaining momentum backed by impressive performance of its primary division — Intermodal. Notably, this segment contributed 55% to the company’s first-quarter 2018 revenues of $1,948.2 million. Also, segmental revenues increased 14% in the quarter.

Load volumes in Intermodal segment were up 6%. Revenue per load, excluding fuel surcharge revenues, rose 4% on a year-over-year basis. Operating income improved 20% year over year backed by volume growth and customer rate increases among other factors. For 2018, revenues from the segment are projected to increase between 7.5% and 11%.

Apart from Intermodal, J.B. Hunt’s other key divisions — Dedicated Contract Services and Integrated Capacity Solutions — are also performing well. In fact, we expect these segments to continue the trend in the coming quarters as well. Based on this optimism, J.B. Hunt anticipates its top line to increase between 11% and 15% in 2018.

Moreover, the new tax law is a boon for transportation companies like J.B. Hunt. Effective tax rate at J.B. Hunt is projected to come down to approximately 26% in 2018 from 37.9% in 2017. The significant cut in corporate tax rate should boost cash flow, which in turn, will lead to bottom-line growth.

We are impressed by the company’s efforts to reward shareholders through dividend payments and share repurchases. In January 2018, J.B. Hunt raised its quarterly dividend to 24 cents per share, mirroring an increase of 4.3% over the previous payout. In terms of buybacks, the company had roughly $521 million remaining under its total share buyback authorizations as of Mar 31, 2018.

Also, J.B. Hunt's trailing 12-month return on equity (ROE) supports its growth potential. The company’s ROE of 25.9% compares favorably with ROE of 16.3% for its industry and 16% for the S&P 500 index. This implies that the company is efficiently using shareholder funds.

We expect an uptick in such investor-friendly activities, courtesy of the new tax law. As a result of the huge savings generated from the reduced corporate tax rate more cash are likely to be left in hand for the company to fund such activities.

Zacks Rank & Key Picks

J.B. Huntcarries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Transportation sector are SkyWest, Inc. (NASDAQ:SKYW) , Expeditors International of Washington, Inc. (NASDAQ:EXPD) and GATX Corp. (NYSE:GATX) . While Expeditors sports a Zacks Rank #1 (Strong Buy), SkyWest and GATX carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of SkyWest, Expeditors and GATX have rallied more than 70%, 38% and 25%, respectively, in a year’s time.

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