Raymond James Still Sidelined On JB Hunt Despite Strength Across The Business

J B Hunt Transport Services Inc (NASDAQ: JBHT) reported a big fourth-quarter bottom-line beat with outperformance in every segment. But one analyst isn’t ready to ride the growth.

The Rating

Raymond James analyst Patrick Tyler Brown maintained a Market Perform rating on the stock.

The Thesis

The firm’s intermodal, dedicated fleet services (DCS), integrated capacity solutions (ICS) and truck segments each exceeded expectations in earnings before interest and tax.

“Digging a bit deeper, intermodal pricing was a clear standout (and we surmise key to JBI's 210 basis points year-over-year margin boost) as management was able to clinch outsized contractual renewals owed to an extremely tight truck market in 2018,” Brown wrote in a note. “This said, volumes were a tad disappointing as load growth turned negative.”

This quarter was the first in Raymond James’ coverage with negative volumes. The analyst blames issues with isolated rail services, a lack of peak accelerations and major transcon losses.

Meanwhile, DCS expanded margins, ICS profited from a contracting spot market and improved contract mix, and trucking capitalized on contract pricing strength.

Brown expects DCS to remain JB Hunt’s “pivotal growth engine” despite shifting Street focus toward the intermodal line. In fact, he remains skeptical about management’s constructive pricing guidance for the latter business.

“We simply struggle with this outlook as (setting renewal ‘timing differences’ aside) we fundamentally view intermodal as a substitute to truck, and thus an increasingly likely unfavorable truck pricing outlook should ‘spill over’ to intermodal,” he wrote.

Price Action

At time of publication, JB Hunt shares traded up 5.7 percent.

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