J.B. Hunt — How to Play Thursday’s Earnings Report

by Jamie Dlugosch | October 12, 2011 10:09 am

J.B. Hunt — How to Play Thursday’s Earnings Report

Trucking firm J.B. Hunt (NASDAQ:JBHT[1]) reports earnings for the quarter ending Sept. 30 on Thursday. The report is likely to show some signs of weakness in the economy, but not the end-of-the-world scenario currently priced in the market.

We had a preview of the transport sector when FedEx (NYSE:FDX[2]) reported results recently. Those numbers were disappointing, but not disastrous. The overnight shipper missed analyst estimates and reduced guidance for the future. The company noted that ground and freight helped to offset weakness in global sales. Shares of FedEx fell after the report but have since recovered — the stock trades above where it stood before the report.

How FedEx panned out might bode well for J.B. Hunt. Also helping matters is the fact that oil costs have dropped dramatically during the third quarter. But will it be enough to generate results that beat expectations?

J.B. Hunt beat Wall Street estimates in three of the past four quarters:

Chart114 J.B. Hunt    How to Play Thursdays Earnings Report

Earnings for the quarter ending June 30 were nondescript. The company met analyst expectations in the period but did not provide guidance for the future. It did state that some 2 million shares were purchased by the company in the second quarter, and there was $164 million remaining on a previously authorized stock buyback plan.

Without any guidance, Wall Street estimates for the quarter ending Sept. 30 have held steady at 57 cents per share. For the full year, the company is expected to make $2.09 per share. That number increases 18% to $2.46 per share in 2012. At current prices, shares of J.B. Hunt trade for 18.5 times current-year estimated earnings.

Chart214 300x173 J.B. Hunt    How to Play Thursdays Earnings Report
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The second-quarter report was followed by a collapse in share price. Tracking the rest of the market lower, J.B. Hunt shares have declined by 20% since July 15. The stock is up slightly during the past 52 weeks.

The two major factors that will impact J.B. Hunt shares after it reports results for the third quarter are valuation and slight declines in economic activity. And it is reasonable to assume that J.B. Hunt will reduce guidance when it reports Thursday.

Offsetting potential negatives are domestic trucking activity, which is showing signs of growth[3]. Lower oil prices also should be a positive for the stock. Much ultimately depends on the mood of the market.

J.B. Hunt is at a premium valuation when measured against expected profit growth, and the company will need a bull market to sustain such momentum — especially if the report includes downward guidance. If the market is in selling mode as it has been during the past few months, an earnings miss with reduced guidance could significantly pressure shares in the short term.

I don’t see a clear direction on this one. If anything, the risk of a decline outweighs the potential benefit of a big pop in share price. I would sit on the sidelines with J.B. Hunt.

As of this writing, Jamie Dlugosch did not own a position in any of the aforementioned stocks. His five keys to trading earnings[4] can help you identify winning trades that can make big profits in a short period of time.

Endnotes:
  1. JBHT: http://studio-5.financialcontent.com/investplace/quote?Symbol=JBHT
  2. FDX: http://studio-5.financialcontent.com/investplace/quote?Symbol=FDX
  3. which is showing signs of growth: http://www.bloomberg.com/news/2011-09-27/u-s-july-trade-using-surface-transportation-table-.html?cmpid=yhoo
  4. His five keys to trading earnings: http://earningspredictor.kajabi.com/sq/5160-jolt

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