J.B Hunt Transportation Services Inc. (JBHT) in Lowell, Ark., provides innovative supply chain solutions to various customers throughout North America. The company uses an integrated, multimodal strategy to provide the optimum solution for each customer, increasing the efficiency, flexibility, and value in their operations.

Last week, JBHT's shares hit a new high of $190.55 after the company announced third-quarter revenue and net income growth, surpassing analysts' estimates. The stock has gained 34.3% in price over the past year and 39.5% year-to-date.

Though the company witnessed strong top-line growth in its last reported quarter, ongoing supply chain disruptions and inefficiencies, labor shortages, and increasing costs could mar its growth in the near term.

Here’s what could shape JBHT’s performance in the near term:

Industry Challenges

The transport services industry is struggling to stay afloat as transportation expenses, equipment costs, and fuel prices have all increased in tandem with the unexpected costs of dealing with supply chain disruptions and labor shortages. Furthermore, according to Transportation Secretary Pete Buttigieg, supply chain issues in the United States could  persist until 2022. This, rising costs along with labor challenges could mar JBHT’s growth in the coming months.

Robust Financials

For the third quarter, ended September 30, 2021, JBHT’s revenue increased 27.2% year-over-year to $3.14 billion. Its operating income grew 56% from its year-ago value to $273.83 million. The company's net income surged 59.2% from the prior-year quarter to $199.83 million over this period. And its EPS increased 59.3% year-over-year to $1.88. In addition, its cash and cash equivalents grew 69% for the nine months ended September 30, to $529.59 million.

Mixed Profitability

JBHT’s 5.9% trailing-12-month net income margin is 2% higher than the 5.8% industry average. Also, its ROA and asset turnover ratios are 118.5% and 136.7% higher than the respective industry averages. However, its trailing-12-months gross profit margin of 16.6% is 43.4% lower than the 29.3% industry average.

Impressive Growth Prospects

A $3.16 billion consensus revenue estimate for the next quarter (ending December 2021) indicates a 15.4% improvement year-over-year. Analysts expect JBHT’s EPS to rise 32.6% from the same period last year to $1.91 in the next quarter.

The Street expects JBHT’s revenues and EPS to rise 21.8% and 40.1%, respectively, year-over-year to $11.73 billion and $6.64 in its fiscal year 2021. Also, the company’s revenue is expected to rise 8.8% year-over-year to $12.77 billion in fiscal 2022, while its EPS is expected to increase 17.6% from the same period last year to $7.81 next year. In addition, JBHT’s EPS is expected to rise at a 20.5% CAGR over the next five years. Also, the company has an impressive earnings surprise history; it topped Street EPS estimates in three of the trailing four quarters.

Stretched Valuation

In terms of non-GAAP forward P/E, the stock is currently trading at 27.97x, which is 38.8% higher than the 20.15x industry average. Also, its 1.69x forward Price/Sales multiple is 7.2% higher than the 1.58x industry average. Moreover, JBHT’s 6.69x forward Price/Book is 108.6% higher than the 3.21x industry average.

The stock’s 13.23x forward EV/EBITDA multiple is 6.5% higher than the 12. 42x industry average of 12.42x.

POWR Ratings Reflect Uncertainty

JBHT has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. JBHT has a B grade for Momentum. This is justified because the stock is currently trading above its 50-day and 200-day moving averages of $173.19 and $163.79, respectively.

The stock also has a C grade for Quality and Value. The company’s mixed profitability and higher-than-industry valuation multiples are consistent with these grades.

Of the 23 stocks in the A-rated Trucking Freight industry, JBHT is ranked #15.

Beyond what I’ve stated above, one can view JBHT ratings for Stability, Sentiment, and Growth here.

Bottom Line

JBHT has witnessed significant revenue growth in the last reported quarter. However, ongoing supply chain disruptions and labor shortages could pose significant challenges for the company. Thus, we think investors should wait for the industry prospects to stabilize before investing in the stock.

How Does J.B Hunt Transportation Services Inc. (JBHT) Stack Up Against its Peers?

While JBHT has an overall C rating, one might want to consider looking at its industry peers, P.A.M Transport Services Inc. (PTSI), Ryder System Inc. (R), and ArcBest Corporation (ARCB), having an overall A (Strong Buy) rating.

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