According to a filing with the SEC, a family trust managed by the spouse of Douglas Duncan purchased 2,600 shares of J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT) on December 5th at an average price of $58.97. Duncan is a member of J.B. Hunt’s Board of Directors and so this transaction had to be disclosed as insider trading. He had already owned 11,000 shares directly. J.B. Hunt is a trucking and logistics services company, and its stock price is up 29% year to date. Duncan’s most recent buy, according to our database of insider filings, came in November 2010 at an average price of $37.20 per share. We had also seen an insider buy at J.B. Hunt in late October at roughly the same price (see a history of insider purchases at JB Hunt). Studies show that stocks bought by insiders tend to outperform the market (read more about studies on insider trading).
Revenue was up 11% in the third quarter of the year from its levels in Q3 2011. Growth was led by intermodal operations, which is responsible for about 60% of J.B. Hunt’s revenue. Earnings increased 14% as the company was well able to control costs, including salaries and wages. A similar story holds for the first half of 2012, as the first nine months of the year have shown a 12% increase in sales while net income has been up 23%. At a market capitalization of $6.9 billion, J.B. Hunt Transport Services, Inc. trades at 23 times trailing earnings. The company would have to continue growing at a good rate in order for that pricing to make sense. Wall Street analysts predict $3 in earnings per share in 2013- up from an expected $2.58 this year- implying a forward P/E of 19.
Hedge funds generally aren’t very excited about J.B. Hunt Transport Services, Inc., with one notable exception: during the third quarter of 2012, Lone Pine Capital initiated a position of 3.8 million shares. This made J.B. Hunt one of the five largest new positions in the fund’s portfolio; Lone Pine is managed by billionaire and Tiger Cub Stephen Mandel. See more stocks Lone Pine owned.
J.B. Hunt is more reliant on intermodal work as opposed to traditional trucking than many other companies in the industry, and as a result it has been recently been growing its earnings at a faster pace. When we look at five peers- Landstar System, Swift Transportation Co (NYSE:SWFT), Old Dominion Freight Line (NASDAQ:ODFL), Werner Enterprises, Inc. (NASDAQ:WERN), and Con Way Inc (NYSE:CNW)– only Old Dominion experienced more earnings growth in its most recent quarter compared to the same period in the previous year. Swift, Werner and Con Way had their net income decline by over 10%. However because of more confidence in J.B. Hunt’s business (and possibly because of its higher market cap as well) these companies’ trailing P/E multiples are between 12 and 18, placing J.B. Hunt at a substantial premium. Swift appears to be the outlier on the lower end of the valuation range: it carries trailing and forward P/Es of 12 and 9, respectively, and expectations of continued growth place it at a five-year PEG ratio of 0.5. We wouldn’t be too trusting of the Street, and as we’ve mentioned its earnings have been down recently, but it could still be worth looking at further. Of course, the fact that Old Dominion has been growing nicely and is cheaper than J.B. Hunt in terms of P/E multiples gets our attention as well. It trades at 17 times trailing earnings.
At this point, J.B. Hunt’s intermodal operations seem to provide it with a competitive advantage. However, it trades at a higher earnings multiple than other trucking related companies, and it’s possible that the market is overestimating intermodal by a bit. Swift and Old Dominion seem like possibilities for investors who are willing to dig through the industry for a better value.
