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Why JB Hunt (JBHT) Was Upgraded

Story updated at 10 a.m. to reflect market activity.

NEW YORK (TheStreet) -- Wunderlich Securities upgraded JB Hunt Transport Services (JBHT) to "buy" from "hold" Wednesday.

JB Hunt gained 0.7% to $72.80 in morning trading.

The analyst firm raised its price target for the trucking company to $89 from $83. The upgrade comes from new analyst Nicholas J. Bender who believes JB Hunt's margins can expand.

"We are transferring coverage of JB Hunt (JBHT) with a Buy rating and $89 price target," Bender wrote. "The company faced 2013 headwinds related to decelerating intermodal volume, contract start-up costs, a choppy brokerage market, and an underperforming truckload segment (JBT).

"However, operating margin looks poised to expand for both the intermodal (JBI) and dedicated (DCS) segments in FY14, and a December 2013 management shake-up at JBT should allow the company to benefit from improving TL fundamentals. We believe JBHT's current share price, at just 18.8x our FY15 EPS estimate of $3.85, undervalues the potential of the integrated, multi-modal operating model."

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Separately, TheStreet Ratings team rates HUNT (JB) TRANSPRT SVCS INC as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate HUNT (JB) TRANSPRT SVCS INC (JBHT) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, largely solid financial position with reasonable debt levels by most measures, notable return on equity and increase in net income. We feel these strengths outweigh the fact that the company shows low profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • JBHT's revenue growth has slightly outpaced the industry average of 4.9%. Since the same quarter one year prior, revenues rose by 10.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • HUNT (JB) TRANSPRT SVCS INC has improved earnings per share by 10.0% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, HUNT (JB) TRANSPRT SVCS INC increased its bottom line by earning $2.86 versus $2.59 in the prior year. This year, the market expects an improvement in earnings ($3.33 versus $2.86).
  • JBHT's debt-to-equity ratio of 0.70 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.81 is weak.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Road & Rail industry and the overall market, HUNT (JB) TRANSPRT SVCS INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • The company, on the basis of net income growth from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and the Road & Rail industry average. The net income increased by 9.4% when compared to the same quarter one year prior, going from $83.98 million to $91.86 million.
  • You can view the full analysis from the report here: JBHT Ratings Report

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