On August 20, Bank of America (BofA) reaffirmed its Buy rating for J.B. Hunt Transport Services Inc. (NASDAQ: JBHT) and set a price target of $189.
This recommendation comes from J.B. Hunt’s announcement of a $1 billion share repurchase program, the largest in the company’s history, accounting for approximately 5.7% of its outstanding shares.
BofA’s analysis highlights the company’s ability to fund this buyback through expected free cash flow without additional debt.
BofA believes the buyback could add significant upside to JBHT’s stock, which is underpinned by strong operating leverage as volumes rebound.
J.B. Hunt’s $1 billion share repurchase program is its fifth since 2014 and the tenth over the past two decades.
The company plans to initiate this new program once it completes the remaining $163 million from its current authorization.
Analysts at BofA, led by Ken Hoexter, anticipate that J.B. Hunt will generate approximately $850 million in free cash flow after dividends and capital expenditures by the end of 2026.
With a modest leverage ratio of 0.9x net debt to EBITDA, J.B. Hunt’s low cost of debt further enhances its ability to optimize shareholder returns by reducing higher-cost equity through this buyback initiative.
Weaker than expected Q2
Despite the optimistic outlook on the buyback, J.B. Hunt’s Q2 2024 earnings report painted a challenging picture.
The company reported a 6.4% year-over-year decline in revenue, totalling $2.93 billion, missing consensus estimates by $100 million.
The drop was primarily due to a decrease in load volumes across several segments, including a 25% drop in Integrated Capacity Solutions and a 9% decline in both Truckload and Dedicated Contract Services.
These headwinds led to a 24% reduction in operating income, which fell to $205.7 million, and a 27% decrease in EPS to $1.32, missing analysts’ expectations by $0.19.
J.B. Hunt’s business segments presented a mixed performance in Q2. The Intermodal segment, traditionally a strong revenue generator, saw a 5% decrease in revenue and a 31% decline in operating income due to lower yields and underutilization of assets.
The Dedicated Contract Services segment also struggled, with a 4% revenue decline driven by lower utilization and fewer revenue-producing trucks.
Meanwhile, the Final Mile Services segment showed resilience with a 5% revenue increase and a 33% rise in operating income, thanks to new contracts and improved revenue quality.
Autonomous trucking collaboration
Fundamentally, J.B. Hunt remains a solid player in the transportation and logistics industry, but it is currently navigating a challenging macroeconomic environment.
The company’s ongoing collaboration with Kodiak Robotics in autonomous trucking represents a forward-looking initiative, having surpassed 50,000 autonomous miles with no accidents.
This milestone, while promising for long-term growth, does not yet offset the immediate financial pressures from declining freight volumes and a tougher pricing environment, especially with unfavourable rates locked in for the remainder of 2024 and early 2025.
Is J.B. Hunt’s valuation at a discount?
Valuation-wise, J.B. Hunt’s shares trade at a discount relative to its peers, with an EV/EBITDA multiple of 12.35x. However, given the near-term headwinds, some analysts are cautious.
This perspective hinges on the belief that J.B. Hunt’s competitive advantage is waning due to declining returns on capital employed and the need for more capital investment to maintain its position in the market.
Despite these concerns, J.B. Hunt’s management continues to prioritize shareholder returns through dividends and buybacks, albeit at a modest forward yield of 1.05%.
Looking ahead, J.B. Hunt’s ability to weather this downcycle will depend on how effectively it can manage costs and maintain operational efficiency. The
Now, let’s transition to technical analysis to see what the charts have to say about J.B. Hunt’s price trajectory.
Are the fundamentals reflected in the current stock price, or is there room for a breakout or further decline?
Let’s delve into the technical indicators to uncover the next possible moves for JBHT.
Can remain rangebound for a long time
J.B. Hunt’s stock saw a strong uptrend between mid-2020 and early 2022 but has been trading in a $160 to $215 range for the past two years. Moreover, the stock has made a double top above $218 on the daily charts during this period.
JBHT chart by TradingView
Unless the stock breaks above the upper band of this range, it can remain range-bound over a long time.
However, investors who have a bullish outlook on the company can accumulate it at current levels with a stop loss of $154.8. If bullish momentum emerges, the stock can again reach above $200 in the coming months.
Traders who are bearish on the stock must avoid shorting it as it is currently trading near its strong support zone at $160.
A short position must only be considered if the stock breaks below and gives a daily closing below $155.
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