Analysts bullish on J.B. Hunt after arbitration notice

by Jeff Della Rosa (JDellaRosa@nwabj.com) 756 views 

Lowell-based carrier J.B. Hunt Transport Services is expected to pay $134 million in the fourth quarter of 2018 as a result of an arbitration with Fort Worth, Texas-based BNSF Railway Co., and analysts remain positive on J.B. Hunt shares.

J.B. Hunt recently announced it would pay pre-tax charges of $134 million, or 93 cents per share, “which is up fairly dramatically from the (12 cents per share) that was incurred in the (third quarter),” according to research analysts Allison Landry, Samantha Yellen and Brian Wright, all of Credit Suisse. “Recall, in early October, Hunt indicated that it was ‘pleased’ with a number of the outcomes, and then in early November, BNSF indicated in its 10Q filing that it, too, was pleased with the decision from the arbitration model — and importantly, indicated that it has provided (J.B. Hunt) with calculations for payments it claims Hunt owes, that are in excess of ($100 million).”

In October, J.B. Hunt announced it would pay $18.3 million in the third quarter as a result of charges claimed by BNSF for customer services between April 2014 and May 2018. The payment was one of several pre-tax charges for a total of $39 million in the third quarter. The other payments were for lawsuit settlements with regard to driver pay and rest breaks and a customer bankruptcy. Combined, the payments were expected to affect earnings by $28.9 million, or 26 cents per share.

When J.B. Hunt announced the initial arbitration payment in October, the carrier noted other issues related to the arbitration would be decided as J.B. Hunt and BNSF submit more information requested by the arbitrators. J.B. Hunt announced on Dec. 13 it would pay $89.4 million in pre-tax charges for the period of May 1, 2016, to Dec. 31, 2017, and $44.6 million for the period of Jan. 1, 2018, to Dec. 31, 2018. J.B. Hunt and BNSF will continue to submit information on how revenue is divided to allow the arbitration panel to issue the appropriate interim and final award related to the issues raised throughout the process.

The arbitration might impact margins in J.B. Hunt’s intermodal segment, said Landry, Yellen and Wright. However, outstanding issues still need to be resolved. Credit Suisse analysts give a buy rating to the stock, and a 12-month target price of $148.

Since the start of the fourth quarter, shares of J.B. Hunt have fallen about 20%, but the analysts continue to favor the stock as a result of the strength in earnings per share in 2019 and improving return expectations. Some of the specifics relate to the pipeline for growth in the Dedicated Contract Services segment with more than 30 new customers, the potential to focus on price rather than volume in 2019 and freight matching software Marketplace, which supports efficiency and asset use and is part of the carrier’s technology platform J.B. Hunt 360.

The carrier’s fourth-quarter earnings are expected to rise by 73.6% to $1.51 per share, based on a consensus of 22 analysts. Revenue is expected to rise by $16.4% to $2.32 billion. For 2018, earnings are expected to rise by 50.8% to $5.40 per share. Revenue is projected to increase by $19.8% to $8.61 billion.

Shares of J.B. Hunt (NASDAQ: JBHT) were trading midday Monday at $93.57, up 88 cents or 0.95%. In the past 52 weeks, the stock has ranged between $131.74 and $91.88.

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