J.B. Hunt Drives in Middle Lane

On Feb 8, we maintained our Neutral recommendation on J.B. Hunt Transport Services Inc. ( JBHT - Analyst Report ) , reflecting its attractive asset base, leading market position and high-class operating systems. The transportation service provider holds a Zacks Rank #2 (Buy).

Why Kept at Neutral?

On Jan 24, J.B. Hunt posted better-than-expected fourth quarter 2012 financial results. The company’s earnings matched the Zacks Consensus Estimate and revenues surpassed our projection based on higher shipment in most of the segments alongside continued growth in fuel surcharge revenues.

For the coming months, we expect the company to benefit from the resurgence in trade given its attractive asset-light models that produce the most attractive returns on invested capital compared to other industry players such as Covenant Transportation Group Inc. ( CVTI - Snapshot Report ) . Two of the company’s segments – Intermodal and Dedicated Contract Services (DCS) that contributed more than 80% to the total revenue in 2012 – are well poised for growth with strong market fundamentals.

We also appreciate the company’s continuous investments to upgrade equipment such as tractors, trailers, containers and trucks that will likely boost the performance level of the transportation services. Other favorable factors include high demand from customers, improved productivity, an efficient workforce and penetration into new markets.

Despite the positives, we prefer to remain on the sidelines, owing to concerns such as inflationary cost conditions in rail and dray transportation, increases in insurance and wages, lower utilization and stiff competition.

For the first and second quarters of 2013, the Zacks Consensus Estimates for earnings are 64 cents and 77 cents per share, respectively. This reflects a respective year-over-year growth of 11.9% and 15.2%.

Other Stocks

Other stocks within the sector that will likely perform impressively in the coming months are Swift Transportation Company ( SWFT - Snapshot Report ) and Marten Transport Ltd. ( MRTN - Snapshot Report ) . Both the stocks carry a Zacks Rank #1 (Strong Buy).