Lowell-based carrier J.B. Hunt Transport Services is expected to beat analyst expectations in the second quarter amid intermodal volume growth, strong intermodal pricing and better-than-projected margins in the brokerage segment, analysts said.
In a second-quarter earnings preview, analysts Justin Long and Jack Atkins and associate Brady Lierz, all of Little Rock-based Stephens Inc., said the carrier’s second-quarter financial results are expected to be Wall Street expectations.
After the markets close on July 19, J.B. Hunt is expected to report earnings to rise to $2.31 per share in the second quarter, from $1.61 per share in the same period in 2021, based on a consensus of 22 analysts. Revenue is projected to rise by 23.6% to $3.6 billion, from $2.91 billion.
The Stephens analysts decreased the 12-month target price expectation on the stock by $15 to $215 per share to reflect the rise in macro uncertainties but continue to believe the company can grow “through a freight recession given its diversified business model.”
Shares of J.B. Hunt (NASDAQ: JBHT) closed Tuesday (July 12) at $164.10, up 4 cents or 0.02%. In the past 52 weeks, the stock has ranged between $153.92 and $218.18.
The Stephens analysts maintained an overweight (buy) rating on the stock and noted a “compelling, company-specific opportunity for growth in the intermodal segment,” which comprises about 60% of the carrier’s operating income. They pointed to the recent enhanced collaboration with Fort Worth, Texas-based railroad company BNSF Railway Co.
The analysts also expect the dedicated segment to be resilient in a downturn with near-term sales activity likely to outperform. The dedicated segment comprises about 25% of the carrier’s operating income.
“We continue to think (J.B. Hunt) is a high-quality and diversified compounder in the transportation sector that is well-positioned to navigate incremental pressure in the freight market/economy in the year ahead,” the analysts said. “There are secular and company-specific tailwinds in its three largest businesses (intermodal, dedicated and brokerage), and valuation metrics have retreated toward the low end of the historical range as we believe many investors are incorrectly characterizing (J.B. Hunt) as just a ‘trucker.’ There will admittedly be near-term volatility and times of weakness in the stock if the macro environment deteriorates.”
Following is a second-quarter preview by segment:
Intermodal contract rates have remained strong, and revenue per load is expected to rise by double digits. Box turns are expected to be flat from the first quarter. But because of the addition of intermodal containers, volumes are expected to rise by 3.7% from the first quarter and by 6% from the second quarter of 2021.
In the second half of 2022, intermodal volumes are expected to accelerate because of easier comparisons to 2021, more capacity and pent-up demand for truck-to-intermodal conversions. This momentum is expected to continue into 2023 in light of the enhanced collaboration with BNSF.
Also, the elevated price of fuel should contribute to the value proposition of intermodal. According to analyst estimates, intermodal contract pricing is between 25% and 35% cheaper than truckload pricing in the United States.
Truck sales could rise compared to the previous quarter in which 600 trucks were sold. Margins could be soft because of fuel and start-up costs related to the sales. But the analysts expect margin improvement in the second quarter, compared to the first quarter of 2022.
The segment can be a source of resiliency amid a sizable backlog and margin expansion if growth slows and start-up costs fall. The segment could contribute to “substantial operating income growth in 2023 regardless of how the macro-environment trends,” the analysts said.
Volumes are projected to be flat from the same period in 2021 as the company focuses more on the near-term opportunity for margin improvement, the analysts said. Gross margins are expected to outperform and rise by 1 percentage point from the first quarter. According to analysts, the five-year average showed the segment has seen 1 percentage point of margin degradation in the second quarter from the first quarter.