The size of J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT), a US$11b large-cap, often attracts investors seeking a reliable investment in the stock market. Big corporations are much sought after by risk-averse investors who find diversified revenue streams and strong capital returns attractive. However, its financial health remains the key to continued success. Today we will look at J.B. Hunt Transport Services’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into JBHT here.
JBHT’s Debt (And Cash Flows)
JBHT’s debt levels surged from US$1.1b to US$1.2b over the last 12 months – this includes long-term debt. With this growth in debt, JBHT currently has US$7.6m remaining in cash and short-term investments to keep the business going. Moreover, JBHT has generated US$1.1b in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 94%, signalling that JBHT’s operating cash is sufficient to cover its debt.
Can JBHT pay its short-term liabilities?
At the current liabilities level of US$1.4b, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.11x. The current ratio is calculated by dividing current assets by current liabilities. For Transportation companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can JBHT service its debt comfortably?
JBHT is a relatively highly levered company with a debt-to-equity of 55%. This isn’t surprising for large-caps, as equity can often be more expensive to issue than debt, plus interest payments are tax deductible. Since large-caps are seen as safer than their smaller constituents, they tend to enjoy lower cost of capital. We can test if JBHT’s debt levels are sustainable by measuring interest payments against earnings of a company. Net interest should be covered by earnings before interest and tax (EBIT) by at least three times to be safe. In JBHT’s case, the ratio of 16.94x suggests that interest is amply covered. Large-cap investments like JBHT are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.
JBHT’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. This is only a rough assessment of financial health, and I’m sure JBHT has company-specific issues impacting its capital structure decisions. You should continue to research J.B. Hunt Transport Services to get a better picture of the large-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for JBHT’s future growth? Take a look at our free research report of analyst consensus for JBHT’s outlook.
- Valuation: What is JBHT worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether JBHT is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
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