JB Hunt Stock Decline: Prediction of Lower Prices Ahead

JB Hunt NASDAQ:JBHT is in the midst of an industry normalization that will reinvigorate its market. However, normalization is taking longer than expected and there are risks to the economy that point to lower price movement before the recovery can begin. The first is inflation and its impact on interest rates.

The FOMC is expected to signal an economic turnaround by cutting rates this year, but inflation remains sticky and the chances of a rate cut in 2024 are declining. The latest message from Fed Chair Jerome Powell is that inflation is harder to tame than previously thought and has not seen appreciable improvements in the past three months. Since the FOMC is unlikely to cut rates over the summer as the market discounts it, the recovery for both the economy and JB Hunt will not begin until they do. And that may not happen until next year.

JB Hunt has a substantially weak quarter

JB Hunt’s business contraction is slowing from last year but is still strong and higher than analysts’ estimates. The company reported quarterly revenue of $2.94 billion, a decline of 9%, beating the Marketbeat consensus by 600 basis points.

Weakness was seen in most segments due to lower revenue per load and volume. Integrated capacity solutions were the weakest, with a 26% drop driven by a 22% load drop. Trucking was down 13% and intermodal was down 9% on revenue per load, while dedicated contract services were down 2% with fewer trucks. Final Mile is the only segment growing. It grew 2% thanks to contracts signed in 2023, but could see weakness later in the year.

The margin is worrying because it has contracted due to deleveraging on volumes and returns and higher costs related to wages, insurance, interest expenses and taxes. The net result is a 30% decline in operating income and a 35% contraction in GAAP earnings. GAAP earnings of $1.22 are enough to support the dividend, but fall short of the consensus of 32 cents, calling the full-year outlook into question.

Analysts don’t expect a robust year from JB Hunt or the transportation sector, but they expect a return to growth for the business by the end of the year. Because first-quarter results are so weak, the second quarter is unlikely to match current estimates, so analysts will likely revise forecasts lower; growth may not be expected until next year.

Analysts maintain a Moderate Buy rating: lower price targets

Analysts rate JBHT stock a Moderate Buy, but began reducing their price targets ahead of the release. Lowered price targets arise from valuation and risk and are becoming a trend. The post-release action includes about a dozen reviews; all maintain their sentiment rating but include a reduced price target. Many new revisions have the market trading between $160 and $170, suggesting the stock is fairly valued now that it has undergone the correction, but there is risk of lower prices. JB Hunt is not expected to post a significant business improvement in the following report, likely leading analysts to lower their targets again.

Remote JB Hunt is in critical support

Price action in JB Hunt is range bound and moving lower to test support. The price action shows support near the bottom of the range, but there is still room before critical support levels are reached. That level is near $155. If it gets broken, this stock could enter a downtrend. In this scenario, the next target for firm support is near $140.

Investors planning to hold JBHT will be interested in the health of the dividend. The company maintained a healthy balance sheet in the first quarter, increasing its cash balance and decreasing its total debt, so there are no red flags. The payout is small, with a yield of less than 1%, but safe and reliable.

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