Truck Pricing Is Inflecting; Loop Says Buy J.B. Hunt Shares

Rick Paterson of Loop Capital has launched coverage of J B Hunt Transport Services Inc JBHT with a Buy rating and $100 price target on inflection in truck pricing and company’s guidance for mid- to high-single-digit volume growth at its franchise intermodal unit in 2017.

Bullish Analysis

“[T]rucking pricing cycle, which appears to have inflected over the summer and we likely now have at least a couple of years of improving pricing dynamics to look forward to, which will positively impact all four of J.B. Hunt's business units,” Paterson wrote in a note.

Paterson’s bullish thesis also assumes company’s core pricing metric to grow in low-single-digit in 2017 and progressing to mid-single-digit growth in 2018. If this assumption plays out, margins should initially improve in its truck division, followed by intermodal.

Moreover, the analyst believes J.B. Hunt could retain its intermodal market share given its scale, quality of execution, and incumbency. Notably, the company’s contract with BNSF gives J.B. Hunt priority access to capacity and power over rate setting.

Analyst Expectations

Meanwhile, the analyst expects EPS growth at about 2 percent ($3.74) in 2016 due to weak pricing after the company averaged 12 percent EPS growth over the prior three years. Paterson forecast 13 percent growth in 2017 ($4.25) as high retail inventories are starting to normalize.

“On forward EV/EBITDA the stock is currently 9.7x, near the middle of its post-recession range. In terms of upside to our target it's 10 percent plus the dividend, so admittedly not a table pounder, although still attractive in the context of a transportation sector where growth is hard to find,” Paterson added.

At last check, shares of J.B. Hunt were down 0.7 percent at $90.70.