Stock Analysis & Ideas

This Trucking Stock is Steering Through 2022’s Storms

Story Highlights

The pandemic has led to supply chain constraints, and inflation affected fuel and freight costs. Recession fears and high freight costs are expected to pull down freight demand. Despite this situation, this trucking stock is pulling through impressively.

“Supply chain” is something we have been abundantly hearing ever since the pandemic pinch started to hurt the economy. The trucking industry of the U.S. is one of those which are adding to the supply chain issues for various reasons.

Truck Drivers Pull Brakes

The matter of truck drivers (or lack thereof) is pulling the brakes on the entire trucking industry, along with burgeoning fuel costs. Some would say the grueling hours and low pay in some trucking services have effectively driven away truck drivers.

However, many insiders and analysts are realizing that there are as many upsides to payment and joining bonuses as there are amply qualified and experienced drivers in the market who simply don’t want to drive. Basically, more than a shortage problem, it is a problem of high turnover and low retention that looks like a labor shortage.

The American Trucking Associations (ATA) revealed that there was an apparent shortage of truck drivers by an alarming 80,000. Moreover, the Transportation Department found that every year, about 300,000 truck drivers quit the profession altogether.

Now, this is impacting the day-to-day lives of consumers because trucks deliver about 70% of freight in the U.S. and deliver daily goods and essentials like food, water, toilet paper, and vaccines to around 80% of the United States. Stalled trucks are keeping products from reaching store shelves.

The ‘Growing Pains’ of Inflation

Inflation has been making its presence felt more aggressively since the beginning of this year. Rising fuel prices were already a matter of concern when the Russia-Ukraine war began, giving a new boost to the upsurge in fuel prices.

Trucks burn large loads of fuel per day, and fuel is one of the main costs of any transportation service company. According to the U.S. Energy Information Administration, the price of the fuel that heavy-duty trucks require has advanced by more than $1.50 per gallon in the past two months.

Given that the U.S. commercial vehicles use around 36.5 billion gallons of diesel per year (according to ATA), one can easily figure out the difference a $1.50 per gallon price rise makes.

High shipping expenses are another pain point for trucking and transportation services. Projects that require trucks to transport materials are getting expensive. Moreover, freight demand is also likely to soon take a hit, paving the way for a “freight recession.”

Which Trucking Company Could be Approaching Greener Fields?

In such a precarious situation, companies with a steady flow of income and strong dividend-paying history and capability can be good investment bets. We picked a trucking stock preferred by Wall Street analysts, which can be a safe haven amid tumultuous times.

JB Hunt (NASDAQ: JBHT)

Logistics solutions provider JB Hunt has been focused on improving flight productivity for quite some time now, and that’s what has helped it sail through the challenging capacity-constrained freight environment in Q1. Notably, JB Hunt’s robust year-over-year revenue growth of 33% was driven by higher revenue per truckload, elevated fleet productivity, and the company’s ability to secure capacity for customers.

JB Hunt’s effort to reward its shareholders even during difficult times is impressive. Two dividend hikes were made in 2021, and another $0.10 raise was announced this year in January, bringing the dividend to $0.40 per share.

Last week, Benchmark analyst Christopher Kuhn initiated coverage of J.B. Hunt with a Buy rating and a price target of $215. A strong possibility of growth in intermodal transport and JB Hunt’s strong revenue-generating capabilities from contract services encouraged Kuhn.

The industry’s transition to precision-scheduled railroading has not boded well for JB Hunt. Moreover, the port and railroad congestions that resulted from COVID-related supply-chain constraints have led to a deceleration in the growth of loads carried for the company’s intermodal business. Nonetheless, Kuhn remains upbeat about the prospects of the intermodal business, which is JB Hunt’s largest revenue generator.

He thinks that “intermodal volume growth will turn positive in 2022 as rail congestion eases and JBHT onboards additional containers to its fleet.” Importantly, JB Hunt plans to increase its existing fleet by 12,000 containers in 2022 in order to meet demand.

Kuhn also expects the company’s contract-service revenues to remain strong on the back of additional trucks. Kuhn noted that J.B. Hunt intends to add 1,000-1,200 trucks every year, which is expected to strengthen its stronghold in the trucking industry.

Wall Street is cautiously optimistic about JB Hunt, with a Moderate Buy rating based on 14 Buys and seven Holds. The average JB Hunt price target is $207.95, representing 26% upside potential.

Parting Thoughts

Supply chain disruptions are expected to persist for some more time. Inflation doesn’t show signs of stopping overnight, and the fears of a possible recession are rife. Nonetheless, some strong bellwethers like JB Hunt are expected to be able to drive their businesses through these storms.

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