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Buy JB Hunt Transport? Here Are 3 Things You Need to Know

By Rich Smith – Mar 10, 2016 at 12:30PM

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The most important thing: The biggest news isn't about JB Hunt at all.

As stock markets start out mostly flat in early trading Thursday, one stock in particular, JB Hunt Transport Services (JBHT 0.04%), is rocking and rolling -- and up nearly a full percentage point in response to a price-target hike from BB&T Capital Markets.

The news
Bright and early Thursday morning, BB&T announced it is reiterating its buy rating on JB Hunt shares, and raising its price target to $90 per share. That's an 8% increase from the analyst's previous price target of $83, and offers new buyers a chance to earn a 12% profit on the stock over the next year -- plus a further 1.1% in dividend payments.

Here are three things you need to know about this news.

Trucks, ships, and trains -- when it comes to transport, JB Hunt does it all. Image source: JB Hunt.

Thing No. 1: JB Hunt hits cruise control
First off, this story actually began two days ago, when JB Hunt basically gave investors the green light to buy its stock and to stop worrying about the trucking industry. As reported on on Tuesday, JB Hunt is reiterating its prediction that revenue will grow 9% to 12% this year, with profits growing nearly as fast -- up 8% to 11%.

Thing No. 2: That's not the end of the good news
Without context, double-digit growth in sales and earnings sounds like pretty positive news, right? Well, it gets better. According to analysts who follow JB Hunt, polled on S&P Global Market Intelligence, the average estimate for JB Hunt's long-term profits growth this year is only 10%. So JB Hunt is opening up the possibility of an earnings beat in 2016. Additionally, long-term forecasts for the company's growth call for earnings to expand 15% over the next five years.

Meanwhile, TheFly reports that JB Hunt is expecting to ratchet back capital spending pretty sharply this year -- from the $725 million spent in 2015, capex spending could fall to just $537 million in 2016. Assuming operating cashflow equal to 2015 levels, that could result in as much as $336 million in positive free cash flow this year -- almost precisely what analysts have been predicting.

That's bound to make Wall Street happy.

Thing No. 3: BB&T likes what it hears
JB Hunt is an intermodal transporter, and BB&T predicts that "intermodal service continues to improve, driven by faster train speeds and reduced dwell times." As reported on today, BB&T is forecasting improvements in both trucking in particular and intermodal transport (when containers get handed off from ships to trucks to trains and back to trucks again, for example) in general.

Positive news out of Swift Transportation (NYSE: SWFT), which announced last night that it will probably earn between $1.50 and $1.60 this year (Wall Street is only looking for $1.53), supports this view. And according to Swift, earnings will grow stronger, and faster, as the year progresses, with 15% growth in the first quarter accelerating to perhaps 25% in quarters two and three, then hitting as much as 37% in the final quarter of the year.

And one more thing...
That's all pretty exciting news (and perhaps even more exciting for Swift investors than for JB Hunt). But wait -- we've saved (perhaps) the best news for last.

According to BB&T, the real key that convinced the analyst that things are turning around in transport is JB Hunt's relationship to its "largest intermodal partner," BNSF. BNSF, as you probably know, is now the rail transport arm of Warren Buffett's Berkshire Hathaway (BRK.B 0.10%). And according to BB&T, business is going gangbusters at this Berkshire Hathaway subsidiary.

"Year-to-date BNSF container volumes have grown 19.2% after posting less than 2% growth in all of 2015," says BB&T. And while some could argue that 2015 was an exceptionally weak year for transport, because of "the west coast port mess," BB&T notes that "last year volumes fell 11.5% but this year container volumes grew 24.8%, meaning that volumes were 10.4% higher than the strong levels of 2014."

In short, 2016 really is starting to look like a turnaround year -- not just for JB Hunt and Swift Transportation, but perhaps for one of Berkshire Hathaway's biggest subsidiaries as well.

Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. You can find him on Motley Fool CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 282 out of more than 75,000 rated members.

The Motley Fool owns shares of and recommends Berkshire Hathaway. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

Berkshire Hathaway Stock Quote
Berkshire Hathaway
$316.15 (0.10%) $0.31
J.B. Hunt Transport Services Stock Quote
J.B. Hunt Transport Services
$182.88 (0.04%) $0.07

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

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