Yahoo Finance Is J.B. Hunt Transport Services, Inc.'s (NASDAQ:JBHT) Recent Performance Tethered To Its Attractive Financial Prospects?
Most readers would already know that J.B. Hunt Transport Services' (NASDAQ:JBHT) stock increased by 4.2% over the past month. Since the market usually pay for a company’s long-term financial health, we decided to study the company’s fundamentals to see if they could be influencing the market. Particularly, we will be paying attention to J.B. Hunt Transport Services' ROE today.
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
See our latest analysis for J.B. Hunt Transport Services
How To Calculate Return On Equity?
Return on equity can be calculated by using the formula:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for J.B. Hunt Transport Services is:
29% = US$1.0b ÷ US$3.5b (Based on the trailing twelve months to September 2022).
The 'return' is the yearly profit. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.29.
Why Is ROE Important For Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
A Side By Side comparison of J.B. Hunt Transport Services' Earnings Growth And 29% ROE
Firstly, we acknowledge that J.B. Hunt Transport Services has a significantly high ROE. Even when compared to the industry average of 25% the company's ROE is pretty decent. The high ROE therefore is what most likely laid the ground for the decent growth of 8.1% seen over the past five years by J.B. Hunt Transport Services.
As a next step, we compared J.B. Hunt Transport Services' net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 11% in the same period.
Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. What is JBHT worth today? The intrinsic value infographic in our free research report helps visualize whether JBHT is currently mispriced by the market.
Is J.B. Hunt Transport Services Using Its Retained Earnings Effectively?
J.B. Hunt Transport Services' three-year median payout ratio to shareholders is 21% (implying that it retains 79% of its income), which is on the lower side, so it seems like the management is reinvesting profits heavily to grow its business.
Moreover, J.B. Hunt Transport Services is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Existing analyst estimates suggest that the company's future payout ratio is expected to drop to 16% over the next three years. Regardless, the future ROE for J.B. Hunt Transport Services is predicted to decline to 23% despite the anticipated decrease in the payout ratio. We reckon that there could probably be other factors that could be driving the forseen decline in the company's ROE.
Summary
On the whole, we feel that J.B. Hunt Transport Services' performance has been quite good. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a respectable growth in its earnings. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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