In IBD 50 Stocks to Watch, today's focus is trucking stock J.B. Hunt, which moved its way onto the list after displaying strong momentum and a relative strength line at all-time highs.
J.B. Hunt transports goods via rail and trucks throughout North America. Founded in Lowell, Ark., the company operates more than 12,000 trucks and owns over 100,000 trailers and containers.
The company is primarily involved in intermodal transportation, having the largest high-cube container fleet in North America accounting for almost half its revenue.
Company results have been strong, with earnings rising 58% to $2.28 per share in the past quarter, while revenue climbed 28% to $3.5 billion. Amid labor shortages and weather disruptions, intermodal volume declined slightly. Despite this, high demand drove revenue per load up 22% on the year.
While J.B. Hunt appears to be overvalued compared to its peers with a price-earnings ratio of 22.8 compared to the industry average of 12.8, there are justifications for the higher valuation. J.B. Hunt has been a leader in the push for autonomous driving, recently becoming the first freight transporter to team up with Alphabet's Waymo unit. So far, test results have been successful.
Trucking Stocks Suffer Labor Shortages
Autonomous driving is certainly a big step for the industry. The Covid-19 pandemic led to severe labor shortages, further exacerbated by the "Freedom Convoy" trucker protests. Thankfully for trucking companies, additional labor shortages due to the vaccine mandate have not affected the cross-border supply chain as much as expected.
Nevertheless, the move to autonomous driving could vastly reduce trucking companies' labor costs, leading to increased profits in the long term.
Earning growth is another factor in the valuation. EPS increased drastically from $4.17 in 2020 to $7.14 last year. Projections are for continued growth in earnings, to $8.71 and $9.53 in 2022 and 2023, respectively.
J.B. Hunt will report first-quarter results in mid-April, with EPS estimated at $1.90 and revenue of $3.27 billion.
With a relative strength line currently at highs, J.B. Hunt is forming a flat base with a $207.98 buy point, according to MarketSmith pattern recognition.
