Hedge Funds Are Bullish On JB Hunt Transportation Services

Dow Theory And The Transportation Average

Investors hoping for the market rally to continue in 2020 would do well to revisit Dow Theory. According to theory, the industrials and transportation sectors need to confirm each other for such a move to occur. With the Dow Jones Industrial Average sitting at new all-time highs and the Dow Jones Transportation Average yet to break out the odds for a rally in 2020 are slim. Or are they?

A look at the Dow Jones Transportation Index (DJT) shows a sector trending sideways within a range. This range was sparked by intensifying trade-war relations but now the fundamental story is changing. The much-anticipated Phase One Trade deal is sure to reinvigorate global trade and with it the entire transportation industry.

But you don’t have to take my word for it. Stocks within the industry like, J.B. Hunt Transportation Services (JBHT) and Goodyear Tire (GT), are getting the thumbs up from analysts and hedge funds alike. Just today, the analysts at Stephens reiterated their bullish stance and raised the price target. Stephens set a new price target as well, implying a 15% upside from today’s price and a new all-time high by the end of the year.

Insider Monkey reports increasing activity among the hedge funds over the second half of 2019. At the start of the 4th quarter of 2019, nearly 25 hedge funds had initiated or add to positions in J.B. Hunt. Among these are Citadel Investment Group, a top-ten money manager in terms of total capital under management.

J.B. Hunt Rules Intermodal Shipping

J.B. Hunt is a U.S.-based trucking outfit operating land-based shipping throughout North America. The company operates in four segments with a focus on Intermodal and end-to-end solutions. Intermodal is all those shipping containers you see stacked up on ships: J.B. Hunt is the leader when it comes to delivering those containers where they need to go.

In the last report, the company revealed YOY revenue rose 7% despite the slowdown in economic activity last year. Highlights of the report include strength in Intermodal pricing although there was some weakness in other core areas.

The outlook for the 4th quarter is not rosy, not in terms of EPS growth, but 2019 will be a year of growth for the company and that growth will continue next year. Total revenue should grow by 6.5% in 2019 and then 6.2% in 2020. Earnings per share will grow by 22% in 2019 and then another 10% in 2020. And that’s without the added tailwind of the Phase One Trade Deal.

J.B. Hunts Expands Its Exposure To The Last Mile

The last mile for delivery is the most important, it is the final link in the transportation chain, the point at which the consumer receives its product. J.B. Hunt just announced another acquisition in its work to dominate in that respect. The company purchased RDI Last Mile, Co, a final-mile operator delivering bulky and unusual products in the northeast. RDI last Mile, Co generates about $35 million per year, after the acquisition, it will expand its operations and further boost growth for JB Hunt in future years. 

J.B. Hunt used its existing credit facility to fund the deal so there is little impact on fundamentals. The company’s debt is increased but covered by ample free-cash-flow which also leaves the dividend unhampered. The stock only yields about 0.90% at today’s prices which isn’t very much. The upshot is the total returns could top 15% over the next year. A price move above $120 would be very bullish and trigger a strong buy in the MACD and stochastic indicators.