Analysts expect J.B. Hunt to see intermodal boost in West, 4Q earnings to fall

J.B. Hunt Transport Services should see intermodal demand rise as import container volumes increase on the West Coast and its rail partner’s volumes surge in the West.

In a fourth-quarter earnings preview, Brad Delco and Justin Long, transportation analysts for Little Rock-based Stephens Inc., reiterated their buy rating for the Lowell-based carrier and updated the 12-month target price to $135 per share, from $115. J.B. Hunt plans to release fourth-quarter earnings on Jan. 18, before the markets open.

“We believe the driver shortage has remained very challenged, leading to a tight (truckload) market during peak season, which should help with incremental volumes as well as (intermodal) pricing discussions,” according to Delco and Long. “Longer-term we believe (J.B. Hunt) is still in an ideal position to capitalize on tightening industry capacity with a better competitive position vs. peers across a diverse platform.”

J.B. Hunt Transport Services is expected to report fourth-quarter earnings of 99 cents per share, up two cents from the same period in 2016, according to a consensus of 19 analysts. Revenue is expected to rise 11.3% to $1.92 billion, based on a consensus of 14 analysts.

For the quarter, net income is projected to fall 16.4% to $98.3 million, according to Delco and Long. They recently lowered their fourth-quarter earnings estimate by 8 cents to 89 cents per share after the carrier released earnings guidance. The analysts noted they included a 10 cents per share insurance charge in the estimate, and while they considered it a one-time charge, they have historically included it in earnings per share estimates. They also updated their per share earnings estimates for 2017, 2018 and 2019 to $3.48, from $3.68; $5, from $4.30; and $6, from $5.25, respectively.

By segment, intermodal volumes are expected to increase to 7.2%, up from the previous estimate of 6.5%. Delco and Long also expected margins to improve from the third quarter as pricing and demand improved across the network. In the dedicated contract services segment, “moderate fleet growth” is expected from new business along with “sequential margin improvement” of 50 basis points from the third quarter.

But Delco and Long expect headwinds from startup costs related to new business. In the brokerage segment, strong spot market prices will allow for results similar to the third quarter, offset by margin pressure on committed or contract business. Net revenue margins are expected to improve to 13%, from 12.8% in the third quarter. In the trucking segment, margins are expected to improve 130 basis points, according to Delco and Long.

“We do expect driver challenges to put pressure on margins, and with little exposure to the spot market, we expect pricing to be more muted vs. (truckload) peers.”

The carrier can expect a favorable 2018 as truckload capacity is tight, driver challenges continue, electronic logging devices put pressure on capacity, demand for dedicated contract services reaches an all-time high and fuel prices are higher than they were at the same time in 2017.

“This is the perfect recipe for stronger demand and pricing across (J.B. Hunt’s) business segments,” Delco and Long said. “We see further upside to the stock stemming more from multiple expansion in the near term, ahead of positive earnings revisions that we believe will arise when contractual (intermodal) pricing accelerates, combined with (intermodal) volume growth in a tight (truckload) market.”

Spot truckload demand remained strong in December, and pricing for dry van spot rates was up 17% as of mid-December, according to Benjamin Hartford, transportation analyst for Baird. Contract bidding favored the carriers in the fourth quarter, and when shippers tried to rebid contracts, “tight capacity has limited efforts to source capacity on more favorable terms. All told, we have increased confidence in core contractual truckload pricing growth achieving mid-single-digit increases during 2018, with similar, albeit lagging, pricing growth within domestic intermodal.”

For the week ending Dec. 23, U.S. intermodal volume rose 11.3% to 281,210 containers and trailers, from the same week in 2016, according to the Association of American Railroads.

Shares of J.B. Hunt (NASDAQ: JBHT) closed at $116.87, up 78 cents on Wednesday (Jan. 3). The stock hit a 52-week high on Wednesday of $118.05. The 52-week low was $83.35.