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We think that J.B. Hunt Transport Services stock (NASDAQ: JBHT) currently is a better pick compared to its peer Old Dominion Freight Line stock (NASDAQ: ODFL), given J.B. Hunt’s better prospects and comparatively lower valuation. JBHT stock trades at a P/S ratio of 1.8x, compared to 6.7x for ODFL stock. Although both the companies saw a substantial rise in revenue over the last twelve months, the growth has been better for J.B. Hunt in the long run.

If we look at stock returns, Old Dominion’s 23% growth is better than the 18% returns for J.B. Hunt over the last twelve months. This compares with 13% growth in the broader S&P 500 index. While both the companies are likely to see continued top-line expansion, J.B. Hunt is expected to outperform. There is more to the comparison, and in the sections below, we discuss why we believe that JBHT stock will offer better returns than ODFL stock in the next three years. We compare a slew of factors such as historical revenue growth, returns, and valuation multiple in an interactive dashboard analysis of Old Dominion Freight Line vs. J.B. Hunt Transport Services: Which Stock Is A Better Bet? Parts of the analysis are summarized below.

1. J.B. Hunt’s Revenue Growth Has Been Stronger Over The Recent Years

  • Both companies managed to see strong sales growth over the last twelve months. Still, Old Dominion has witnessed comparatively faster revenue growth of 30.9% vs. 26.3% for J.B. Hunt.
  • Looking at a longer time frame, Old Dominion’s sales grew at a CAGR of 10.1% to $5.3 billion over the last twelve months, compared to $4.0 billion in 2018, while J.B. Hunt’s revenues grew at a CAGR of 12.6% to $12.2 billion currently, compared to $8.6 billion in 2018.
  • Barring 2020, Old Dominion Freight Line’s revenue has been steadily rising with increased demand for the trucking industry. Of late, it has benefited from both – a rise in volume driven by increased demand and available network capacity and better pricing.
  • For J.B. Hunt, the revenue growth over the recent years has been driven by increased demand for all of its services, including intermodal and integrated capacity solutions. Higher fuel surcharge, better pricing, and increased demand for trucking have led to J.B. Hunt’s revenue growth over the recent past.
  • The driver shortage is a well-known issue for the trucking industry, and it is unable to meet the rising demand. Note that 72% of the entire U.S. freight is moved on trucks. Overall, the demand for the trucking industry at large will likely remain on the higher side going forward, and both Old Dominion and J.B. Hunt should benefit from the same.
  • Our Old Dominion Freight Line Revenue and J.B. Hunt Transport Services Revenue dashboards provide more insight into the companies’ sales.
  • J.B. Hunt’s revenue is expected to grow at a marginally faster pace than Old Dominion over the next three years. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 10.4% for J.B. Hunt, compared to a 9.9% CAGR for Old Dominion, based on Trefis Machine Learning analysis.
  • Note that we have different methodologies for companies negatively impacted by Covid and for companies not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed in the three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.

2. Old Dominion Is More Profitable, And It Comes With Lower Risk

  • Old Dominion’s operating margin of 19.4% over the last twelve months is much better than 9.o% for J.B. Hunt.
  • This compares with 19.9% and 8.6% figures seen in 2019, before the pandemic, respectively.
  • Historically, Old Dominion has enjoyed much better margins than J.B. Hunt, largely explaining the difference in valuation multiple of both the companies.
  • Old Dominion’s free cash flow margin of 23.1% is better than 10.1% for J.B. Hunt.
  • Our Old Dominion Freight Line Operating Income and J.B. Hunt Transport Services Operating Income dashboards have more details.
  • Looking at financial risk, Old Dominion is better placed over J.B. Hunt. Its <1% debt as a percentage of equity is lower than 6% for J.B. Hunt, while its 15% cash as a percentage of assets is much higher than 5% for the latter, implying that Old Dominion has a better debt position and it has higher cash cushion.

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3. The Net of It All

  • We see that Old Dominion is more profitable, and it offers a comparatively lower financial risk. However, J.B. Hunt has seen better revenue growth over recent years, and it is trading at a relatively lower valuation.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe J.B. Hunt is currently the better choice of the two.
  • The table below summarizes our revenue and return expectation for Old Dominion and J.B. Hunt over the next three years and points to an expected return of 23% for JBHT stock over this period vs. 13% expected return for ODFL stock, implying that investors are better off buying JBHT over ODFL, based on Trefis Machine Learning analysis – Old Dominion Freight Line vs. J.B. Hunt Transport Services – which also provides more details on how we arrive at these numbers.

While JBHT stock may outperform ODFL, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Fastenal vs. Old Dominion Freight Line.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

Invest with Trefis Market Beating Portfolios

See all Trefis Price Estimates

Source: Forbes

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