Shares of J.B. Hunt (NASDAQ: JBHT) are moving lower following the Q3 release, and they may fall lower, but that is a good thing for a buy-and-hold forever stock. The company’s results are solid despite relative weakness compared to last year, suggesting the long-term outlook is as good as ever. While volume and pricing are weak compared to last year, the business is stabilizing above the 2019 levels, and acquisitions are setting it up for leverage when the economy turns.
The latest purchase is the brokerage business of BNSF Logistics. The brokerage is an affiliate of BNSF Railway and will merge with J.B. Hunt’s Integrated Capacity Solutions segment. The deal is for all cash and is expected to close by year-end. This is not the 1st collaboration between the 2 entities; the pair created the double-stack method for shipping in the late 80’s. This new deal extends their work to disrupt and improve the US shipping and logistics market.
1) J.B. Hunt’s Weak Results aren’t too Weak
J.B. Hunt reported a near 18% decline in revenue that came in slightly below the consensus estimates and sent shares down more than 5%. The takeaway is that revenue was expected to fall, given the strength seen last year and this year’s decline in volume and pricing. While weaker than expected, the results missed by a slim 125 basis points and did little to alter the company’s financial position. More importantly, revenue is up 35% compared to 2019 and is expected to grow again in 2024.
Analysts forecast J.B. Hunt to grow revenue by high single digits in 2024 and widen the margin. Earnings growth is forecast to more than double the top-line advance. Even if the forecasts fall, the results are sufficient to sustain the business and capital return program.
2) J.B. Hunts’ Balance Sheet is Solid
J.B. Hunt had a mixed quarter and faces headwinds in Q4/Q1 2024 but can weather whatever comes. The company’s balance sheet is a fortress despite the slight increase in total debt. Total debt increased by $0.2 billion compared to last year but is offset by increased capital expenses, which rose by $0.3 billion for the YTD period. CAPEX aided fleet increases and modernization, 2 factors that will aid results in coming quarters. Cash on hand at the end of the quarter is up YOY and more than double the cash at the end of 2019.
3) J.B. Hunt has a Substantial Capital Return Program
J.B. Hunt doesn’t pay a high yield; the stock returns about 0.85% with shares near $183, but it is a safe payout compounded by share repurchases. Given the current results, the dividend is about 23% of 2023 earnings, so it is easily covered. The payout ratio falls below 20% relative to the 2019 outlook, implying another year of distribution increase. The company has increased for 20 years and is on track to reach Dividend Aristocrat level before the end of the decade.
Share repurchases were about 267,000 shares in the quarter, about $51 million, and there is $416 million left on the authorization or about 2% of the post-release market cap. Share repurchases are a tailwind for the market; the company retires shares and reduces the count by more than 0.5% compared to Q3 2022. Evidence of the impact of repurchases is seen in the book value. Book value increased 10% YOY to $38.96.
4) The Sell-Side is Still Interested in J.B. Hunt
The analysts' rating on J.B. Hunt is Hold, but this a firm Hold by 17 analysts verging on Moderate Buy. Many current ratings are pegged at Outperform or equivalent, and the consensus target is favorable. Analysts don’t see a lot of upside for this stock now but view it as fairly valued, and institutional support is firm. Institutions own about 74% of the stock and have been buying on balance in 2023.
5) The Technical Outlook: Range Bound Conditions for J.B. Hunt
J.B. Hunts shares show a ceiling at $200 that marks the top of a trading range. The price action may move to the bottom of the range, but a deeper correction is not expected. Price action also indicates support with the range that should keep the action moving sideways over the next few months. If the market can’t hold at the $180 level, a move to $160 is possible. At that level, the stock will be below the low end of the analysts’ target range and in deep-value territory.