Please ensure Javascript is enabled for purposes of website accessibility

J.B. Hunt Earnings Surge in Q4 2019 -- But It's Still No Bargain

By Rich Smith - Jan 23, 2020 at 7:18AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Profits increased 2/3 in Q4, and free cash flow doubled for the year.

When J.B. Hunt (JBHT 2.95%) reported its financial results last week, it was kind of like that old "tale of two cities." On the one hand, there were the trucking company's quarterly results for the fourth quarter, which seemed fantastic. And then there were the results for the year, which ... didn't.

Let's address them one at a time, beginning with: 

Tractor trailer driving into a sunset

Image source: Getty Images.

J.B. Hunt's Q4 results

Q4 numbers at J.B. Hunt, at first glance, looked bright and shiny. $2.45 billion in Q4 sales grew only 6%, granted. But the profits earned on those revenues grew 67% year over year, to $1.35 per share.

Those numbers actually sound better than they were, however, because Hunt's year-ago profits were weighed down by "charges for contingent liabilities related to the arbitration with BNSF Railway Company," making Q4 2019 profits look better by way of comparison. Back out the one-time charges, though, and Hunt explains that its operating income would have "decreased 20% from fourth quarter 2018."

J.B. Hunt's full-year results

That's the value of looking at numbers context. To further see how things are going at J.B. Hunt, let's draw back and look at the year as a whole.

For all of fiscal 2019, Hunt collected $9.17 billion in revenue. That was up 6% year over year, so very similar to Q4's results. Profits-wise, though, the results couldn't look more different. Instead of operating profit surging by two-thirds, it crept up only 7%, to $4.75 per share, or almost as slowly as revenues grew.

What it means to investors

Now the question: Is that growth rate fast enough to justify the stock price?

With only moderate levels of debt (about $1.3 billion on a $12.1 billion market capitalization) on its balance sheet, I think it's fair to evaluate J.B. Hunt stock by valuing it on either price-to-earnings or (more conservatively) price-to-free cash flow, not adjusting for net debt. By the former measure, the stock sells for 23.8 times its $516 million in trailing GAAP earnings.

Free cash flow at Hunt isn't great, however. Although up more than double over 2018's $202 million in cash profits, Hunt generated only about $410 million in cash profit in 2019. So when valued on free cash flow, Hunt stock sells for a 30x multiple -- about 20% more expensive than its P/E ratio makes it appear.

Whichever valuation you choose to guide you, it seems to me that these prices are too high for a stock that's growing earnings at only 7% or so.

Granted, it's possible J.B. Hunt will grow its earnings faster in future years than it did in 2019. Although sales were relatively flat (up less than 1%) in both the company's intermodal and "integrated capacity solutions" businesses, sales surged 25% in Hunt's dedicated (contracted) trucking division. That's Hunt's most profitable division (albeit still not hugely profitable at an operating margin of only 11.1%). With continued growth there, I suppose it's possible Hunt could grow earnings at the 13% long-term earnings growth rate that Wall Street analysts project for it (according to data from S&P Global Market Intelligence).

Still, even when giving Hunt every benefit of the doubt -- valuing the stock on P/E instead of its more expensive P/FCF ratio, ignoring the debt load, and even assuming a 13% growth rate that's nearly twice what Hunt accomplished in 2019 -- I think J.B. Hunt stock is simply too expensive to buy right now.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

J.B. Hunt Transport Services, Inc. Stock Quote
J.B. Hunt Transport Services, Inc.
$162.15 (2.95%) $4.65

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.