Analysts say J.B. Hunt earnings, revenue to rise by double digits in third quarter

Lowell-based carrier J.B. Hunt Transport Services Inc. is expected to post double-digit increases in earnings and revenue for the third quarter amid strong pricing, freight demand and tight capacity.

Before the markets open Friday (Oct. 15), J.B. Hunt is expected to report earnings per share of $1.79 in the third quarter, up 51.7% from $1.18 per share in the same period in 2020, based on a consensus of 19 analysts. Revenue is projected to rise by 21.9% to $3.01 billion, from $2.47 billion.

In a third-quarter earnings preview, analysts Justin Long and Jack Atkins, and associate George Sellers, all of Little Rock-based Stephens Inc., expect J.B. Hunt to meet or slightly miss Wall Street analysts’ expectations. They highlighted several positives for J.B. Hunt, including “a ramp in the benefits from a strong intermodal pricing environment, a continuation of robust dedicated demand and strong brokerage results given the current tightness in capacity.

“However, we believe these tailwinds will be muted in the near term by a continuation of network congestion/challenges that are likely to drive a (year-over-year) decline in intermodal volumes and worse-than-expected results in the Final Mile segment,” the analysts added.

The analysts noted that stock pressure through the end of the year would be a buying opportunity as they expect growth in 2022, particularly in the intermodal and dedicated segments. They maintained an overweight, or buy, rating on the stock and a 12-month target price of $195.

Shares of J.B. Hunt (NASDAQ: JBHT) were trading Thursday (Oct. 7) at $173.42, up $1.76, or 1.03%. In the past 52 weeks, the stock has ranged between $184.38 and $119.22.

Following is a preview by segment:

INTERMODAL
Analysts said that J.B. Hunt has yet to see the benefits of price increases reflected in its earnings reports. But this should change in the next several quarters as intermodal contracts from the bid season this year go into effect.

Volumes are expected to fall by 3% in the third quarter, from the same period in 2020. According to the analysts, the decline can be attributed to congestion in the network that’s impacting box turns. Capacity improvements are expected when the carrier receives the 12,000 containers it ordered this year. Between 3,000 and 4,000 of the containers were delivered in the third quarter. The remaining containers are expected to be delivered in the fourth quarter and early 2022. The analysts said that additional equipment and rail service improvements could lead to double-digit volume growth in 2022.

DEDICATED
Over the past four quarters, dedicated sales activity has exceeded 2,000 trucks, the analysts said. The carrier’s growth target has been between 800 and 1,000 annually.

“We would not be surprised to see this abnormally strong sales activity persist in (the third quarter of 2021), and in our opinion, the reported growth in the dedicated fleet will start to more closely mirror this sales activity in (the second half of 2021) and early next year,” the analysts said. “While we think startup costs could pressure dedicated margins slightly on a sequential basis in (the third quarter of 2021), we think it’s important to not lose sight of how this is setting the stage for very strong operating income growth for dedicated in 2022.” They project operating income to rise 20% in 2022, from 2021.

BROKERAGE
According to the analysts, freight market trends in the second half of 2021 “could be at least as hectic as” the second half of 2020 as a result of strong demand and tight capacity. These factors are expected to lead to volume growth in the brokerage segment. They expect double-digit volume growth compared to the same period last year and the second quarter of 2021. Gross margins are projected to rise by 0.5 percentage points to 11% in the third quarter, from the second quarter. Over the same period, operating income is expected to rise to $8 million, from $3 million.

The analysts expect the segment to continue to scale and grow operating income in 2022.

“However, our sense is that investors have a heightened level of focus on the competitive dynamics in the digital brokerage space due to several recent developments in the sector: Transfix going public via a SPAC (special-purpose acquisition company), the takeout of ECHO by private equity and Uber Freight’s acquisition of Transplace,” analysts noted.

FINAL MILE
Demand trends have been strong, but the analysts said “the bottom-line results for this segment could be disappointing in (the third quarter of 2021) from headwinds related to startup costs, labor shortages and a reduction in the available inventory to ship (i.e. furniture).” As a result, operating income is expected to fall to $2 million, from $7.5 million in the second quarter when excluding a claims benefit.