Hub Group Could Benefit From Pricing Growth In Trucking Sector, Analyst Says

Transportation management company Hub Group Inc HUBG was upgraded by Baird, with the research firm highlighting the company's valuation and fundamentals. 

The Analyst

Baird analyst Benjamin Hartford upgraded shares of Hub Group from Neutral to Outperform and upped the price target from $45 to $55.

The Thesis

Accelerating truckload/intermodal pricing growth in 2018 is likely to provide the basis for gross margin expansion for the Hub Group, driving material operating leverage and an improving ROIC profile, Hartford said in a Tuesday note. (See Hartford's track record here.) 

Shares of Hub Group have underperformed the market over the past one-, five- and 10-year periods amid a declining return on invested capital, or ROIC, profile, the analyst said. 

Hartford said he expects the downtrend in ROIC to reverse in 2018 after erosion over the last decade amid increased capital intensity and gross margin pressure within its core Hub intermodal offering.

Baird maintained its forward EPS estimates for the Hub Group, but left the door open for upward revisions in 2018.

"[The] combination of improved outlook for ROIC and potential for upside to estimates should maintain/expand HUBG's valuation multiple," Hartford said.

Baird is a buyer of Hub Group shares at current levels, the analyst said. 

The Price Action

Hub Group shares are up about 9 percent year-to-date.

At the time of writing, the shares were up 3.75 percent percent to $48.45. 

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