As the economy has rebounded and so too has the transportation sector. After all, it's not too easy for companies to sell more "stuff" and not need additional transportation services. While the railroads have been on a much-discussed run since 2009, trucking companies have had a more mixed performance.

TUTORIAL: Financial Statements

Making matters a little more complicated, although J.B. Hunt (Nasdaq:JBHT) is often listed among the trucking companies, that is not really an accurate depiction. In point of fact, intermodal business is the single largest component of the company's revenue and income. What's more, the differences in JBHT's business model seem to go a long way towards explaining why this company has been a solid performer. (To read more on financial statements, see 12 Things You Need To Know About Finncial Statements.)

Strong Demand Leads to Strong Quarter
J.B. Hunt reported a better than 18% jump in revenue for the first quarter, with 13% growth once the impact of fuel surcharges are stripped out of the picture. Intermodal was the leader both in growth and scale, as revenue grew 23% here to $577 million (about 58% of the total) on the back of 15% volume growth. Dedicated contract services saw 15% revenue growth, while revenue from the truck segment rose 6% despite an 11% decrease in loads and a 12% decrease in tractors on the road.

Profitability improved overall, but it was a bit more of a mixed bag. Overall operating income rose 33%, with growth in operating income from intermodal totaling about 32%. There was not much growth in the dedicated business (up 1%), while there was a significant year-on-year improvement in the truck business. (To learn how to breakdown income statements, check out Understanding The Income Statement.)

Higher Fuel? No Problem
Trucking companies like Old Dominion (Nasdaq:ODFL), Knight (NYSE:KNX) and Swift (Nasdaq:SWFT) all have mechanisms for passing on higher fuel costs through surcharges, but J.B. Hunt can actually see more business from higher fuel prices. When fuel costs go up, the efficiency advantages of rail transport and intermodal (which relies significantly on rail) really stand out and customers increasingly switch to intermodal. That means more business for J.B. Hunt. Better still, intermodal operations are highly profitable on an ROIC basis, so it amounts to a win-win for J.B. Hunt.

What's good for J.B. Hunt in intermodal should also be good for major partners like Norfolk Southern (NYSE:NSC) and Berkshire Hathaway's (NYSE:BRK.A) Burlington Northern. That said, by keeping a trucking business and offering a range of services and transportation alternatives for customers, J.B. Hunt has options that pure plays like Echo Global (Nasdaq:ECHO) lack. (For more on Intermodal industry, check out Railroad, Trucking Earnings Growth Set to Keep Rolling.)

The Bottom Line
As long as consumer spending and economic activity keep improving, there's going to be solid demand for transportation. That's good for the rails, that's good for the intermodals and that's good for the truckers. The truckers, though, have issues with higher fuel prices and that gives J.B. Hunt's large intermodal exposure a real advantage.

Now, all of that said, there is still a right price for every asset and J.B. Hunt's current stock price seems to fully reflect the bull-case scenario. That does not preclude the stock going up further or the company outperforming expectations; it just means that the probable risk-benefit trade-off in the shares isn't so favorable right now. (Read How to Outperform The Market to learn more.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  2. Stock Analysis

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  3. Investing

    Don't Freak Out Over Black Swans; Be Prepared

    Could 2016 be a big year for black swans? Who knows? Here's what black swans are, how they can devastate the unprepared, and how the prepared can emerge unscathed.
  4. Investing News

    Today's Sell-off: Are We in a Margin Liquidation?

    If we're in market liquidation, is it good news or bad news? That party depends on your timeframe.
  5. Investing News

    Bank Stocks: Time to Buy or Avoid? (WFC, JPM, C)

    Bank stocks have been pounded. Is this the right time to buy or should they be avoided?
  6. Stock Analysis

    Why the Bullish Are Turning Bearish

    Banks are reducing their targets for the S&P 500 for 2016. Here's why.
  7. Stock Analysis

    How to Find Quality Stocks Amid the Wreckage

    Finding companies with good earnings and hitting on all cylinders in this environment, although possible, is not easy.
  8. Stock Analysis

    Analyzing Sirius XM's Return on Equity (ROE) (SIRI)

    Learn more about the Sirius XM's overall 2015 performance, return on equity performance and future predictions for the company's ROE in 2016 and beyond.
  9. Stock Analysis

    Will Virtusa Corporation's Stock Keep Chugging in 2016? (VRTU)

    Read a thorough review and analysis of Virtusa Corporation's stock looking to project how well the stock is likely to perform for investors in 2016.
  10. Stock Analysis

    Analyzing Porter's Five Forces on JPMorgan Chase (JPM)

    Examine the major money-center bank holding firm, JPMorgan Chase & Company, from the perspective of Porter's five forces model for industry analysis.
RELATED FAQS
  1. When does a growth stock turn into a value opportunity?

    A growth stock turns into a value opportunity when it trades at a reasonable multiple of the company's earnings per share ... Read Full Answer >>
  2. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  3. What is the formula for calculating EBITDA?

    When analyzing financial fitness, corporate accountants and investors alike closely examine a company's financial statements ... Read Full Answer >>
  4. How do I calculate the P/E ratio of a company?

    The price-earnings ratio (P/E ratio) is a valuation measure that compares the level of stock prices to the level of corporate ... Read Full Answer >>
  5. How do you calculate return on equity (ROE)?

    Return on equity (ROE) is a ratio that provides investors insight into how efficiently a company (or more specifically, its ... Read Full Answer >>
  6. How do you calculate working capital?

    Working capital represents the difference between a firm’s current assets and current liabilities. The challenge can be determining ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center