J.B. Hunt starts ocean freight service; analyst recommends selling carrier’s stock

Lowell-based carrier J.B. Hunt Transport Services Inc. recently started to handle ocean freight as a non-vessel operating common carrier, according to an industry expert. Meanwhile, an analyst started coverage of the carrier with a sell recommendation.

A non-vessel operating common carrier (NVOCC) is an ocean carrier that handles freight without operating ships. NVOCC companies are licensed by the Federal Maritime Commission, and J.B. Hunt received its NVOCC license in March 2019. The license runs through September 2022, and ocean recovery expert Steve Ferreira, founder and CEO of Ocean Audit Inc., discussed the new service on recent FreightWaves podcast What The Truck.

“This lumbering giant of a domestic beast is now able to basically take all those wonderful full-container load and rail clients they have in the United States, and guess what, 90% of those clients of theirs ship ocean,” Ferreira said, adding how simple it would be for J.B. Hunt to ask those clients to consider the new service.

NVOCC companies lease space from another ocean carrier with vessels and sell the space to their own customers, according to customs brokerage Flexport. NVOCC companies can also operate as a freight forwarder, and many own their containers.

J.B. Hunt is ready to provide the service after working on it for at least a year, Ferreira said, noting that international shipping is “a different animal” than domestic freight delivery and requires some “fine moves” before it can be implemented. He added he wouldn’t be surprised if J.B. Hunt had already started this service “under the radar” and believes that it has prepared for it. The carrier likely isn’t looking to haul “high-end fashion, date-sensitive retail” freight but might look to handle commodities, such as furniture, tires and chemicals, he said.

The production of J.B. Hunt’s intermodal containers allowed for an opportunity for the company to provide ocean freight to customers. The company’s 53-foot-long intermodal containers are produced in China, and instead of having them shipped empty to the United States for use here, the carrier found freight that could be hauled in them from China, Ferreira said. J.B. Hunt orders the containers and chassis from China International Marine Containers, according to the Journal of Commerce. As of the end of 2019, J.B. Hunt had about 96,700 intermodal containers and trailers in its intermodal business segment.

“They’ve been dabbling in this for…well over a year… going through other partners and third parties using their new build equipment, so it’s not like it just happened out of the blue,” Ferreira said. “It’s a unique opportunity that gave them a chance to do their due diligence and really understand kind of a la vis-a-vis Flexport now how to build up the volume. And I think that’s a really interesting scenario to relate them to.”

Nearly 5,000 companies in North America are registered as an NVOCC, and the goal will be to find ways to stand out among the crowd, he said. Ferreira doesn’t expect J.B. Hunt to immediately start hauling a lot of ocean freight and will carefully consider what freight they haul and for whom they transport it.

In a Seeking Alpha article, “Shareholders Have More Concerns Than Brokerage and Intermodal Headwinds,” analyst Centaur Investments established coverage of J.B. Hunt with a recommendation to sell the stock and a 12-month target price of $85. The carrier’s revenue has risen 25% since 2016 as a result of acquisitions, private fleet conversions and its technology platform J.B. Hunt 360, the article shows. However, the growth has come at a higher cost of selling, general, administrative and operations expenses per dollar in sales, as interest expenses have increased 50% since 2016.

Earnings per share have risen, but this could be attributed to a lower tax rate and lower share count, according to the article. Its shares have been trading at 23 times earnings and five times book value, and with the ongoing cyclical issues and less than optimal spending, “these multiples seem a bit overreaching,” according to Centaur.

“Investors can seek to hedge against upside risk by using call options in combination with their short equity position,” the article shows. The analyst noted that it has no position in the stock, but “may initiate a short position in [J.B. Hunt] over the next 72 hours.”

Shares of J.B. Hunt (NASDAQ: JBHT) were trading Wednesday (Feb. 26) at $100.37, down 90 cents or 0.89%. In the past 52 weeks, the stock has ranged between $122.29 and $83.64.