Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Long Ideas

Can Trucking Survive at JB Hunt?

Trucking is receiving a lot of scrutiny and criticism these days. Many observers believe the trucking industry is on the verge of major disruption.

Elon Musk, for example, believes electric-powered semis will soon become the norm in the industry. Consequently, Musk’s Tesla Motors (NASDAQ: TSLA) is manufacturing and marketing an electric semi.

Meanwhile, presidential candidate Andrew Yang (D-New York) believes self-driving trucks will put tens of thousands of truckers out of work. News stories about autonomous truck tests by companies like UPS (NYSE: UPS) lend credence to Yang’s fears.

Tellingly, the Volvo Group plans to launch a self-driving truck subsidiary called Volvo Autonomous Solutions in 2020, Interesting Engineering reveals. Furthermore, Volvo unveiled pictures of the first semi tractor with no cab for the driver.

Do Trucking Companies make Money?

Given these developments, I think the trucking industry could soon change beyond reception. Thus it is a good time to ask if trucking companies like J.B. Hunt Transport (NASDAQ: JBHT); the second largest trucking business in the US according to Careersingear, make money?

I believe only cash-rich companies can survive industries undergoing a paradigm shift. If trucking undergoes a paradigm shift, firms like J.B. Hunt will need a lot of cash. For instance, J.B. Hunt could have to replace its fleet of over 12,000 semi-tractors.

Notably, Tesla charges $150,000 to $200,000 for its electric semi. However, the Tesla website claims trucking companies could save over $200,000 in fuel costs by going electric.

Furthermore, companies like the Alphabet (NASDAQ: GOOG) subsidiary Waymo will not give their autonomous truck technology away. J.B. Hunt could save money by hiring fewer drivers. but end up paying a fortune to use Waymo’s technology.

I think Alphabet (NASDAQ: GOOGL) entered the truck because its management thinks they can make a lot of money from autonomous freight. A worst-case scenario for J.B. Hunt is competing with Waymo Freight. Thus, J.B. Hunt could need to spend tens of millions on expensive new technology over the next decade.

Is J.B. Hunt Making Money?

There it is a good time to ask is J.B. Hunt (NASDAQ: JBHT) making money? Presently, J.B. Hunt makes money but has little cash.

For instance, J.B. Hunt reported a quarterly gross profit of $959.37 million, a quarterly operating income of $193.09 million, and a quarterly net income of $133.63 million on 30 June 2019.

J. B. Hunt made that money from quarterly revenues of $2.261 billion. Those revenues grew at a rate of 5.73% in the quarter ending on 30 June 2019. Thus, J.B. Hunt could be a growth stock.

J. B. Hunt’s has very little cash. The company had an operating cash flow of $395.92 million and a free cash flow of $92.73 million on 30 June 2019. Significantly, J.B. Hunt reported just $6.88 million in cash and short-term investments on 30 June 2019.

Under these circumstances, I do not think J.B. Hunt is generating enough cash to survive as a standalone company. In my opinion, J.B. Hunt’s margin of safety could be too low.

Is J.B. Hunt an Acquisition Target

However, I think J.B. Hunt could thrive as part of a larger enterprise like Alphabet (NASDAQ: GOOGL) or Berkshire Hathaway (NYSE: BRK.B). To explain, Alphabet and Berkshire Hathaway (NYSE: BRK.A) have lots of cash.

Notably, Alphabet had $121.056 billion in cash and short-term investments on 30 June 2019. Meanwhile, Berkshire Hathaway had $44.634 billion in cash and equivalents on the same day.

Thus Alphabet has the cash to buy a trucking company like J.B. Hunt and fold it into Waymo if management wants. In addition, Berkshire Hathaway owns at least one logistics business, the McLane Company which supplies merchandise to retail stores.

How Amazon could Threaten Trucking Companies

Thus J.B. Hunt could become an acquisition target. Another buyer is Amazon (NASDAQ: AMZN) which had $41.463 billion in cash and short-term investments on 30 June 2019. Amazon is making purchases in the logistics business including thousands of semi-trailers and cargo containers.

In addition, Transportation Topics blames Amazon Logistics for putting at least one trucking companies out of business. That company was New England Motor Freight which closed shop in February.

Hence, J.B. Hunt could need a deep-pocketed benefactor to survive and protect itself from Amazon. Both Alphabet and Warren Buffett have deep pockets.

Is J.B. Hunt a Value Investment?

I do not consider J.B. Hunt (NASDAQ: JBHT) a value investment because of the lack of cash.

In addition, I think Mr. Market overpriced J.B. Hunt at $117.34 on 22 October 2019. I believe the level of risk at J.B. Hunt does not justify that price.

Moreover, I do not think the 26₵ dividend J.B. Hunt plans for 7 November 2019 justifies the $117.34 share price. Notably, J.B .Hunt’s dividend did not grow this year, despite the 15 years of dividend growth, gives the company.

J. B. Hunt investors received a dividend yield of 0.90%, an annualized payout of $1.04, and a payout ratio of 19.24% on 11 October 2019. I believe those numbers are not good enough to justify the share price.

In my final analysis, I find J.B. Hunt overpriced and too risky. I recommend that investors stay away from J.B. Hunt. This company is generating little cash in a business, trucking, that’s about to undergo a paradigm shift.

I believe J.B. Hunt will have a difficult time surviving and making. Therefore, I advise investors to stay away from J.B. Hunt. 

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