Is JB Hunt's Q1 Miss A 'Reality Check' For The Sector? The Street Debates

Transportation and logistics company J B Hunt Transport Services Inc JBHT reported Monday with a top- and bottom-line miss in the first quarter — results that have Morgan Stanley questioning whether they represent a "reality check" for the transportation sector.

The Analysts

• Morgan Stanley's Ravi Shanker maintained an Equal-weight rating on JB Hunt Transport Services with a price target lowered from $105 to $95.
• Raymond James' Patrick Tyler Brown maintained at Market Perform.
• Stifel's David Ross maintained at Hold with a price target lowered from $115 to $107.

Morgan Stanley: Wake-Up Call?

JB Hunt's first-quarter report fell short of expectations across every segment, with notable weakness in the JBI segment (Intermodal), Shanker said in a Tuesday note.

The company attributed the poor performance to weather issues in January and February and planned rail lane closures. March failed to show improving trends despite a seasonal boost from companies restocking spring merchandise, the analyst said. 

JB Hunt is still introducing low-to-mid-single-digit pricing increases in the TL (full truckload) segment, Shanker said. The company highlighted improving pressure in driver recruitment and wage inflation aside from certain regions. This "goes against the TL bear case" and bodes well for the TL sector as a whole, he said. 

Bullish rail investors will likely view the company's report favorably due to the pricing commentary, the analyst said. Yet there is some reason for concern related to volumes and whether Eastern rails can aggressively push prices higher at a time when the truck market is loose and rail service is poor, he said. 

On the other hand, JB Hunt's report could be seen as a negative for the brokers, as management highlighted negative contract pricing, Shanker said. 

Bottom line, JB Hunt's "bellwether status" coupled with a notable miss in its first quarter could be seen as a wake-up call for investors who may be overlooking weak data points so far in 2019, according to Morgan Stanley. 

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

Raymond James: 'Fair Valuation'

JB Hunt's longer-term growth story remains encouraging given its leading position in intermodal and a growing Dedicated Contract Services pipeline, Brown said in a Tuesday note.

An increasingly cautious stance on intermodal for the back half of 2019 through 2020 is warranted due to what looks like a slowing economy and a "looser" truck market, the analyst said. 

JB Hunt's business is more defensive versus its peers given a unique revenue share agreement, Brown said. Yet the stock is trading at around 19 times 2019 EPS estimates, which represents a premium versus the overall transport complex, suggesting the valuation is "fair" at current levels, he said. 

Stifel: Negative Implications For Peers

JB Hunt's earnings report showed weaker-than-expected volumes and margins in intermodal, which is most negative for Hub Group Inc HUBG and Schneider National Inc SNDR, Ross said in a Monday note. 

Price Action

JB Hunt shares were down 4.76 percent at $100.48 at the time of publication Tuesday. 

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