J.B. Hunt Transport Services Inc. (NASDAQ:JBHT) recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com.

earnings

J.B. Hunt Transport Services Inc. (NASDAQ:JBHT) ’s analysis versus peers uses the following peer-set: Old Dominion Freight Line Inc. (ODFL), Werner Enterprises Inc. (WERN), Con-Way Inc. (CNW), Knight Transportation Inc. (KNX), Swift Transportation Co. (SWFT), Roadrunner Transportation Systems Inc. (RRTS) and Arkansas Best Corp.(ABFS). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Quarterly (USD million) 2012-09-30 2012-06-30 2012-03-31 2011-12-31 2011-09-30
Revenues 1,295.8 1,255.1 1,165.9 1,204.9 1,171.3
Revenue Growth % 3.2 7.7 (3.2) 2.9 1.9
Net Income 78.2 80.5 67.7 72.6 68.7
Net Income Growth % (2.7) 18.9 (6.7) 5.7 4.5
Net Margin % 6.0 6.4 5.8 6.0 5.9
ROE % (Annualized) 41.9 47.9 45.2 54.5 50.1
ROA % (Annualized) 13.0 13.7 11.8 13.1 12.8

Valuation Drivers

J.B. Hunt Transport Services Inc. (NASDAQ:JBHT)’s current Price/Book of 8.2 is about median in its peer group. JBHT-US achieved a better operating performance than the median of its chosen peers (ROE of 46.8% compared to the peer median ROE of 14.5%) and the market still expects faster growth from it than from those peers (PE of 22.0 compared to peer median of 16.9).

The company has a successful operating strategy with above median net profit margins of 6.1% (vs. peer median of 4.4%) and relatively high asset turns of 2.1x (vs. peer median of 1.7x). This suggests that the company has a dominant operating model relative to its peers. JBHT-US’s net margin continues to trend upward and is now over one standard deviation above its five-year average net margin of 5.3%.

Economic Moat

JBHT-US’s revenues have changed in-line with its peers (year-on-year change in revenues is 19.3%) but its earnings have lagged (annual reported earnings have changed by 28.7% compared to the peer median of 101.2%), implying that the company has less control over its costs relative to its peers. JBHT-US is currently converting every 1% of change in revenue into 1.5% change in annual reported earnings.

JBHT-US’s return on assets is above its peer median both in the current period (13.0% vs. peer median 7.6%) and also over the past five years (10.6% vs. peer median 6.1%). This performance suggests that the company’s relatively high operating returns are sustainable.

The company’s gross margin of 22.9% is around peer median suggesting that JBHT-US’s operations do not benefit from any differentiating pricing advantage. However, JBHT-US’s pre-tax margin is more than the peer median (9.8% compared to 7.3%) suggesting relatively tight control on operating costs.

Growth & Investment Strategy

JBHT-US has grown its revenues faster than its peers (6.6% vs. 2.9% respectively for the past three years). The market also sees relatively higher long-term growth prospects for the company, giving it a better than peer median PE ratio of 22.0. Overall, we classify the company’s growth prospects as superior relative to its peers.

JBHT-US’s annualized rate of change in capital of 4.2% over the past three years is higher than its peer median of 1.8%. This investment has generated an above peer median return on capital of 16.0% averaged over the same three years. Evidently, the relatively high capital investment was successful given the relatively strong growth in its returns.

Earnings Quality

JBHT-US has reported relatively strong net income margin for the last twelve months (6.1% vs. peer median of 4.4%). This strong margin performance was accompanied by a level of accruals that was around peer median (5.4% vs. peer median of 6.2%) suggesting that the reported net income is supported by a reasonable level of accruals.

JBHT-US’s accruals over the last twelve months are positive suggesting a buildup of reserves. However, this level of accruals is also around the peer median and suggests the company is recording a proper level of reserves compared to its peers.

Trend Charts

Graph of Revenues Trend for J.B. Hunt Transport Services Inc. (NASDAQ:JBHT)
Graph of Revenues Trend for J.B. Hunt Transport Services Inc. (NASDAQ:JBHT)
Graph of Net Margin Trend for J.B. Hunt Transport Services Inc. (NASDAQ:JBHT)
Graph of Net Margin Trend for J.B. Hunt Transport Services Inc. (NASDAQ:JBHT)
Graph of Accruals Trend (% revenues, Quarterly) for J.B. Hunt Transport Services Inc. (NASDAQ:JBHT)
Graph of Accruals Trend (% revenues, Annual or TTM) for J.B. Hunt Transport Services Inc. (NASDAQ:JBHT)