Industrials J.B Hunt Transportation Services (NYSE: JBHT) · they provide gives them a unique...

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J.B Hunt Transportation Services (NYSE: JBHT)

Krause Fund Research \ Spring 2015

Industrials Recommendation: HOLD Analysts

Brett Theriault Trent Good [email protected] [email protected]

Lucas McCarthy [email protected]

Company Overview Serving as a transportation and logistics company in North America, J.B Hunt is one of the largest in the industry with a $7.3 billion market cap. J.B Hunt provides a number of different services by utilizing its four main business segments. Their services include intermodal, supply chain solutions, light-asset and non-asset transportation solutions, full-load, and dry-van services. They retain a diverse group of customers across many different industries throughout the US, Canada, and Mexico. Most notable is Union Pacific, Norfolk Southern Railroad, Wal-Mart, and many other Fortune 500 companies. For Fiscal year end 12/31/14, their total revenue grew 9% to $374.8 million. Stock Performance Highlights 52 week High $93.50 52 week Low $71.00 Beta Value 0.935 Average Daily Volume 828,200 Share Highlights Market Capitalization $10.66B Shares Outstanding 116.52m EPS (2014) $3.16 P/E Ratio 28.96 Dividend Yield 1.00% Dividend Payout Ratio 25% Company Performance Highlights ROA 11.03% ROE 31.12% Sales $5.55 b Financial Ratios Current Ratio 1.14 Debt to Equity 77.50%

Current Price $90.18 Target Price: $93.08 - $95.15

JBHT Keep on Trucking

Low Fuel Cost: with the recent low fuel prices, J.B Hunt is able to reduce one of its largest expenses which allows for increased net operating profit. Capital Expenditures: J.B Hunt’s management uses their debt to finance large capital expenditures fueling their growth. In 2014, the highly levered trucking company spent $660 million towards replacing and growing their fleet. Major Railroad ties: J.B Hunt has contracts with major railroads, such as Union Pacific and Norfolk Southern, to guide their unique intermodal service. They work collaboratively to maintain their competitive advantage with the intermodal industry. Strong Intermodal Demand: in recent years there has been an extremely large amount of demand for intermodal transportation. With the economy growing at a strong rate, J.B Hunt is positioned to see large growth in this segment. Low interest Rates: The highly levered trucking company is able to capitalize on low interest rates, allowing them to expand at a rapid rate. They are also able to finance their assets with a lower cost of debt. One Year Stock Performance JBHT vs. S&P 500

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Based on our analysis of the economy, the trucking industry, and specific company details, we recommend J.B. Hunt Transportation Services (JBHT) as a HOLD. The diverse combination of supply chain management services they provide gives them a unique advantage within their industry. Their intermodal segment (JBI) gives them a huge advantage over their competitors because they have unique contracts with many of the big railroad companies in the United States. Short-term decreases in fuel prices has made J.B Hunt an attractive transportation option, however we do not believe fuel prices will remain this low moving forward. Once fuel prices rise, it will become more expensive to use trucking as a mode of transportation, thus lowering their demand. We believe their earnings will remain fairly stable moving forward, however we do not foresee any drastic company or market changes resulting in extreme growth for the highly levered trucking company.

Real Gross Domestic Product Real GDP has grown by 2.2% and 2.4% in 2013 and 2014 respectively. 2014 growth is primarily due to an increase in personal consumer expenditures, exports, local and state government spending, residential fixed investments, nonresidential fixed investments, and private inventory investments.II This slight increase in real GDP represents a modest improvement in the overall state of the economy. Q1’15 data suggests that personal income is up 0.3% while personal consumption expenditures (PCE) is down 0.5%.III This indicates that the average consumer has more money but is choosing to save it. Stronger real GDP growth indicates a healthier overall economy. When the economy is healthy, consumers and businesses typically spend more money on goods. Therefore the economy directly relies on the transportation industry to transport these goods across the country. Demand for transportation services is linked to growth in the economy. In 2002, real GDP growth was 1.8% and over 10 percent of that real GDP was contributed by transportation goods and services.IV This demonstrates how important the health of the economy is to the transportation industry. V

From the end of Q1, March 31st, to the end of Q3, September 30th, we expect real GDP growth to be 3.0%. Our reasoning behind the growth is that we believe 2014 was a great year for our economy, and great years are historically shown to be followed by good years.VI Through our analysis, we have found that January is a strong indicator for how the year is going to move. When we examined the price of the S&P 500, we noticed the index fell 3.1% in January, aligned with how the index reacted in January 2014. This shows that 2014 and 2015 real GDP data are going to be somewhat similar, aside from a few economic indicators. Due to the fact that real GDP growth reached 5.0% by the end of Q3 in 2014, we are confident that, in the short term, real GDP growth will reach 3.0%. In regards to the transportation industry, the aforementioned increase in growth should raise economic variables such as nonresidential fixed investments, consumer spending, and demand for transportation services. Going forward, we are confident the economy will continue to grow, reaching 4.0% real GDP growth by April 2017. At that time, the economy will have stabilized oil prices and will have experienced the full effects of the previous year’s cheap oil prices. As a result, consumers will become more comfortable with their spending and savings habits Interest Rates In the short-term, we believe the Fed will begin to gradually raise the federal funds rate in March 2016, thus decreasing the amount of loanable money, and effectively increasing the 30 year Treasury bond yield. This will not cause any drastic changes within the next year for the transportation industry. We believe the 30 Year Treasury bond yield will rise to a range of 3.75% - 4.5% by the end of 2017. We believe this will happen because we expect real GDP growth to hit 4% by April 2017, and the Fed will raise the federal funds rate to pace the economy. This will cause the cost of debt for firms to increase, making debt financing more expensive. The transportation industry is an extremely capital intensive industry, meaning an increase in the 30 Year Treasury Yield will significantly impact the industry.VII We expect this will slow growth within the industry. Government Regulations While government regulations are implemented to ensure success and long term sustainability for our country, their actions can create disadvantages for certain companies overall business model’s. The Environmental Protection Agency (EPA) has an internal division whose primary focus is on transportation and air quality. This puts the transportation industry under a constant microscope for ways to decrease their environmental footprint. The EPA’s main focus is to reduce air pollution for certain sources such as trucks, non-road engines, equipment, and vehicles.VIII While we expect the transportation industry to experience volume growth due the positive economic outlook moving forward, government regulations from the EPA could restrict a surging industry. One of the EPA’s main goals is to reduce greenhouse gas emissions, which is a part of the government's Clean Air Act. In order to effectively implement their agenda, the agency and the National Highway Traffic Safety Administration are taking coordinated steps to incentivize

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production of more eco-friendly on-road vehicles and engines.IX In result, the transportation industry would face external pressures to allocate capital towards newer equipment, hindering their ability for other possible ventures. Hours of Service, by the Federal Motor Carrier Safety Administration, yields another potential risk to the transportation industry. The regulation essentially restricts drivers’ hours of service after a certain amount of time has passed.X In order to retain high driver and asset productivity, it makes financial sense for a trucking firm, for instance, to allow a driver to go beyond their required hours of service. However, if a driver were to fall asleep at the wheel or get in an accident, the company would be held liable for all damages along with hefty fines due to breaking the hours of service regulations. Tighter control over hours of service is problematic for the transportation industry since it yields the risk of excess capacity and higher costs due to higher demand for drivers. While we do not foresee any changes in government regulations to the transportation industry within the coming 6 months, we are confident there will be an increase in government regulations in the next 2-3 years, having an impact on the transportation industry's growth potential. Energy In recent months crude oil has fallen to record lows of about $45 a barrel. This sharp drop in price per barrel is a direct result from the increase in OPEC extraction creating a global surplus. For over 13 straight weeks there have been sharp inventory build ups of nearly 10 million or more barrels a week bring commercial inventories to an 80-years high of 483.7 million barrels.XI The chart below shows the drastic increase in supply, which has driven down prices at staggering rate due to the demand failing to keep up with the supply growth.

XII These low oil prices help boost our domestic economy because the individual consumer saves money at the pump and can spend it elsewhere. However, on the other side for producers these low oil prices mean cuts to profit margins or even overall losses. We do not believe that this leave of output will be sustained for much longer. We believe that crude oil with slowly climb back up to the range of $60-$65 a barrel by September 2015. We believe this price increase will be a result of less oil extraction reducing supply and an increase in demand. Within the next 2-3

years prices should be back to normal levels of about $95 a barrel.

The S&P Industrials Index has been highly correlated with the performance of the S&P 500 over the past 3 years. The S&P Industrials Index has slightly outperformed the S&P 500 with annual returns of 17.94% and 17.55% respectively. We expect this trend to continue going forward due to our prediction that real GDP growth will reach 4.0% in 2017, thus increasing the need for transportation services.

Industry overview According to the Global Industry Classification System (GIS), the highly cyclical industrials sector is comprised of three industry groups followed by thirteen distinct industries. The three industry groups are capital goods, commercial services, and transportation. The capital goods industry group consists of aerospace and defense, building products, construction and engineering, electrical equipment, industrial conglomerates, and machinery. The commercial services and supplies industry concludes the Commercial services industry group. The third, and final, industry group is transportation which includes air freight and logistics, airlines, marine, road and rail, and transportation infrastructure. Throughout this report, we will be analyzing the transportation industry group, specifically the road and rail industry. Sub-Industry The trucking industry is generally regarded as a key economic indicator of the economy’s overall health. In a healthy economy, real GDP is growing, imports and exports are increasing, and businesses and consumers are spending more money. An essential service needed to bring high economic activity together is trucking. After the recession in 2008, trucking companies were significantly underperforming. Since 2009, however, trucking revenue has grown 24.9%, increasing a substantial amount each year. This shows that as the economy has recovered, trucking demand has grown stronger. A key competitor to trucking services are railroads. They provide a cost effective and fuel efficient alternative to trucking transportation. However, crude oil is currently at a historical low price. Low fuel prices are allowing trucking companies to lower their rates, restricting their competitors’ advantage. A key competitive advantage that trucking services provide over other modes of transportation is flexibility and final mile delivery. The industry is capable of supplying clients with a more diverse service selection and increased mobility. Services The following chart represents the different services provided by the trucking industry and the percentage of total revenue that

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they generated in 2014. Truckload carriers and less-than-truckload, or LTL, carriers represent the most significant general services within the industry. Other transportation services, such as logistics, are usually merged with the aforementioned services. Full truckload shipping, or FTL, is a trucking service that offers direct transportation as opposed to LTL, which has to make many stops for selective orders. The various services categorized under LTL and FTL are dry van shipping, flatbed shipping, and refrigerated shipping. Dry van transportation simply refers to transporting freight without temperature controls. This is the most common service provided along with the most versatility. Flatbed trailers are required to ship items such as steel, lumber and heavy machinery. In order to offer value to the agriculture sector, trucking companies offer refrigerated freight to ship their products. The trucking industry's diverse service selection is exhibited in the different business segments companies retain. Popular service segments are intermodal, logistics services, and capacity solutions. When products are shipped via more than one mode of transportation, the service is considered intermodal. The most common form of intermodal transportation is rail to truck, however dryage services provide transportation from ocean ports to trucks.

XIII Products The chart below shows the percentage of total revenue that the trucking industry made from shipping these types of products. Manufacturing goods account for the largest percentage of total revenue with 38.2%. In order to limit their exposure to industry risks, they diversified the sectors they do business with. Wholesale and retail goods account for 31.8% of total revenue combined. Oil refiners and agricultural goods show where future growth may lie for the trucking industry.

Recent Developments and Industry Trends Strong Demand: A growing economy, rising trade volumes, and increased per-capita disposable income have caused trucking demand to skyrocket. Roughly 60% of trade controlled by NAFTA and the United States was shipped via freight trucks. Fourth quarter real GDP grew 2.2% in 2014. A stronger real GDP suggests higher economic activity along with higher trade volume. This means a higher demand for trucking services.XIV In addition to the recent economic growth last quarter, we expect real GDP growth to rise to 4.0% by April 2017. This means the demand and profitability of trucking transportation is going to inflate as time goes on. The lower fuel costs are also increasing personal income. While consumer spending has yet to increase from lower gas prices, we expect the economy to feel the effects from higher consumer spending sooner rather than later. With more spending and higher trade volumes, we are confident the trucking industry is primed to sustain strong demand moving forward. Tightening regulations: The government's increase in regulations has presented the trucking industry with significant challenges ahead. Most notable is the tighter regulation on limited hours of service. Essentially, this regulation restricts drivers’ hours of service after a certain amount of time has passed. In result, trucking companies’ driver and asset productivity could fall, along with the risk of excess capacity.XV Limited driver hour’s means companies could have to employ more workers in order to meet their demand, raising driver demand and wage expenses.XVI Air Quality Regulations: Federal agencies, such as the EPA, have been pushing for lower greenhouse gas emissions and lower fuel consumption for several years. By teaming up with the National Highway Traffic Safety Administration, the EPA has made progress with manufacturers towards producing more eco-friendly on-road vehicles and engines.XVII From the trucking industry's perspective, they could potentially have to purchase newer, more expensive trucks and supplement the added expense with high maintenance costs. Decrease in fuel costs: Fuel costs are a significant operating expense for the trucking industry. While WTI crude oil prices were comfortably in the 100 dollar range last April, they have experienced a dramatic drop since then, and have stabilized, as of April 2015, in the mid-upper 50 dollar range. This dramatic drop in operating costs yields the trucking industry with options to allocate their cash savings elsewhere. According to the American Trucking Association, aside from labor, diesel fuel is the highest expense for the industry and can be as much as 20% of their operating costs.XVIII In the short term, trucking companies in the industry can receive higher profits from the lower crude oil prices through business objectives such as lowering their rates. However, their cash savings from reduced operating costs could potentially yield higher capital for expenditures to fulfill long term volume growth. Increasing driver shortage: Driver shortage debatably presents one of the highest risks to the industry. According to the American Trucking Association, there are approximately 25,000

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trucker jobs unmet.XIX There are simply not enough experienced truck drivers in the job market to meet the demand. An aging population also has many drivers set for retirement in coming years. In result of increased driver demand, the drivers could demand higher salaries and bonuses, which is putting pressure on the trucking industries expenses.XX Due to the attractive real GDP growth we foresee moving forward, and reduced fuel costs, the trucking industry faces challenges to avoid excess capacity. Markets and Competition As shown by the 10 trucking firms below, the trucking industry faces strong competition to fulfill the industry's demand. Since the trucking industry provides a flexible, and diverse, service selection, companies are able to distinguish themselves from competitors to find their market niche. The major players in the industry are JB Hunt, Old Dominion, Swift, Landstar, Knight, Con-way, and Werner, Heartland, Forward Air Corporation.

Company Market Cap Revenue (in millions)

JBHT 10.51B $6,170.00

ODFL 6.25B $2,790.00

SWFT 3.62B $4,300.00

LSTR 2.87B $3,190.00

KNX 2.60B $1,100.00

CNW 2.42B $5,810.00

WERN 2.20B $2,140.00

HTLD 2.01B $871.00

Porter’s 5 Forces Threat of new entrants The threat of new entrants is relatively high due to the fact that anyone who has a truck can essentially join the trucking industry. While there are major players in the industry, the market is not saturated, leaving room for new entrants. Competitive rivalry We rate the level of competitive rivalry within the trucking industry as high. Trucking companies differentiate themselves through unique services provided, transportation rates, and volume of sales. Companies are competing on these factors by using strategies such as only focusing on short haul orders, implementing intermodal services with the railroad industry, and using the low oil prices to reduce their rates. Through the high level of competition, some of the major players are JB Hunt, Heartland Express, Knight Transportation, Old Dominion, and Swift Transportation. . Threat of substitutes We rate the threat of substitution high. Being that, in the transportation industry, the transportation service provided is essentially the product they offer, there many other services offered to replace trucking. Aside from future innovation in the industry, currently there are several other transportation services offered to substitute trucking, such as rail, air freight, and marine services. In result of the high threat of substitutes, cost effective options tend to be the leading factor for business.

Bargaining power of buyers The bargaining power of buyers is relatively moderate in the trucking industry. While there are lots of buyers, or businesses out there in need for transportation, they buyers do not typically have leverage to drive down the shipping rates. However, larger companies with frequent bulk orders have an increased amount of bargaining power to discount the rates. Bargaining power of suppliers In order to effectively assess the buying power of the suppliers, or trucking companies in this case, we would need to analyze each business segment since a key indicator of success in the trucking industry is competitive advantage. All of the companies, for the most part, have a fleet that can transport your products. However, what separates the major players are the uniqueness of their service, such as price, timeliness of delivery, or intermodal services. Intermodal services, for example, are a unique service offered that pairs other modes of transport with trucking to provide a cost effective mode of transportation. Overall, we assess the bargaining power of suppliers to be low. Industry Leaders and Followers In order to effectively understand JB Hunt compared to its peers in the trucking industry, we have aligned their key industry ratios next to each other. An effective valuation method in order to determine the company’s attractiveness as an investment, is to not only understand where the company’s strengths lie, but also where its peers have an advantage over them.

Company Profit

Margin Operating

Margin P/E 2015

D/E %

ROA %

JBHT 6.80% 10.24% 27.3 77.50 12.70

ODFL 9.60% 15.80% 19.9 10.42 13.21

SWFT 3.75% 8.02% 14.8 319.20 7.50

LSTR 4.36% 6.98% 18.6 29.89 13.79

KNX 9.33% 13.27% 22.0 19.79 9.68

CNW 2.36% 4.45% 15.1 62.41 4.88

WERN 4.61% 6.58% 18.9 8.99 6.21

HTLD 9.74% 11.28% 21.4 5.16 8.26

FWRD 7.83% 12.41% 21.0 0.34 11.56

We examined the profit margin of the following 9 companies in order to compare the financial health of each company across the industry. Profit margin is useful for identifying the amount of net income per dollar of sales generated. Essentially the ratio gives us an understanding of how much revenue is kept after all expenses are paid. Among the 9 peer companies, Heartland, Old Dominion, and Knight Transportation are the most profitable companies, with JB Hunt in the middle of the pack. This shows J.B Hunt’s competitive

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advantage does not come from being the most profitable trucking company in the industry. We also analyzed each companies operating margins in the trucking industry to measure their efficiency. Operating margin measures what amount of revenue is left over after paying off all of their variable and operating costs. A higher operating margin essentially shows investors how much the company is making from their core business plan. Old Dominion and Knight Transportation represent the highest operating margins in the industry, with 15.80% and 13.27% respectively, showing they are more efficient than their peers. The P/E ratio tells us expected future growth among these companies. The higher the P/E ratio means higher expected growth in the future. J.B Hunt leads the industry in this regard, reiterating our analysis on why they are an attractive investment moving forward. The debt to equity ratio gives us an idea of how a company is financed. A higher D/E ratio indicates the company has more debt than equity financing. Higher levered firms are riskier and have more volatile earnings. We expect the yield of the 30 Year Treasury Bonds to increase to about 4.5% by 2017, thus making it more expensive for companies to borrow money. Aside from Swift Transportation, JB Hunt has the highest D/E ratio in the trucking industry. This represents where one of JB Hunt’s weaknesses lie, due to the fact that they are riskier than their peers. Return on Assets (ROA) indicates how well companies are utilizing their assets to produce revenue. Landstar, Old Dominion, and J.B Hunt represent the highest return on assets in the trucking industry, meaning they are more efficient at using their assets to produce revenue than their peers.

General Information J.B. Hunt is a North American transportation company that provides logistical solutions, delivery, and transportation services. J.B Hunt transports full-truckload containerized freight using its own employees, or independent contractors. Other services provided by J.B Hunt include freight transportation, labor, revenue equipment, local and home delivery services, and systems. JBHT utilizes its connection of cross-dock service centers located all over the United States to provide its services. J.B Hunt has a variety of business segments which can be split up into Intermodal (JBI) being the largest followed by Dedicated Contract Services (DCS) then Integrated Capacity Solutions (ICS) and Truck (JBT).

Corporate Strategy J.B Hunt seeks to build relationships with customers who view supply chain management as an essential business function to their core operations. J.B Hunt works synergistically with these customers to minimize their costs, and add value to their businesses. Capacity-focused solutions are provided by JBHT through a multimodal strategy. Their intermodal services provide fuel-efficiency, cost effectiveness, and reduce the emission of greenhouse gas. All of these factors are becoming increasingly more important to their customers. Life Cycle We believe J.B Hunt is currently in the growth stage of its business life cycle due to its organic growth in revenues over the past five years. Their operating revenue has increased from $2.88 billion in 2009, to $6.17 billion in 2014. This huge change represents a 53.3% increase over the 5 year span. We attribute this growth to the improving economy, which relies heavily on the transportation industry to move different kinds of products all over the country. We expect real GDP to continue to grow by 4% over the next 2 years, which indicates an improving economy. We project J.B Hunt’s revenue to continue to increase in the coming years at a rate of 10% year over year for the next 2 years, similar to the growth of the past 3 years.

Financial Summary Revenue and operating income both grew almost 10% in 2014 reaching $6.2 billion and 182.9 million respectively. Earnings per share grew 9.2% in 2014. EPS in 2014 increased from $2.87 per share to $3.16 per share. According to J.B Hunt’s clear 2015 guidance, management expects overall revenue to increase 9-12% and operating income to increase by 11-14% in 2015. Fuel

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prices being 7-11% of overall operating expenses, 3rd to rents and purchased transportation and salaries, with current oil prices and improving economy will allow J.B Hunt to achieve these growing results. Products and Markets More than 60,000 containers and trailers, and 25,000 carriers, make up JBHT’s fleet. This massive fleet enables the company to provide a number of different services consisting of customized freight movement, revenue equipment, full-truckload freight transportation, and systems services. J.B Hunt provides its services to a variety of customers throughout the US, Mexico and Canada. Rail companies like Burlington Norfolk Southern and Union Pacific work with JBHT on intermodal transportation. By working with these rail companies, J.B Hunt is able to transport a wide variety of products from many different industries. These products include chemicals, plastic, auto parts, paper products, lumber products, consumer goods, food, and manufacturing supplies. To move all of these different types of products, J.B Hunt uses a wide variety of trucking solutions. They can provide refrigerated trucks, flatbed trucks, less than truckload shipments, truckload shipments, expedited shipments, and final mile shipments. J.B Hunt has four primary business segments that it offers its services through. These segments are Intermodal (JBI), Dedicated Contract Services (DCS), Integrated Capacity Solutions (ICS) and Truck (JBT). As we stated earlier, JBHT works with Class I railroad companies such as Union Pacific and Norfolk Southern to provide its intermodal services. They also provide intermodal services for Puerto Rico and Alaska by partnering with marine transport providers. JBHT’s Dedicated Contract Services “specializes in the design, development, and execution of supply chain solutions that support virtually any transportation network.” Essentially this service is centered on developing a supply chain plan for their customers and executing the plan, using J.B Hunt’s transportation assets. JBHT’s Integrated Capacity Solutions involves utilizing its partnerships with other carriers to ensure a timely, efficient, and cost effective transportation option to their customers. This service is provided by teaming up with other trucking companies to transport products faster and more effectively than what J.B Hunt could provide using only their own assets. With fuel prices as low as they are right now, we expect revenue generated by intermodal services to increase along with a slight increase in margins due to reduced fuel expenses. Their intermodal segment, JBI, has the largest growth potential due to the nature of the business and use of more cost efficient modes of transportation, such as rail for long distances. We also expect their trucking segment to experience an increase in revenue within the next 2 years. However, due to our expectation of oil prices rising to $85-90 a barrel by September 2017 that will hinder the business segments growth. Costs Falling fuel prices was helpful in offsetting a 13% increase in costs that was paid to hire and retain drivers, higher worker compensation and accident costs, and higher costs of equipment ownership. This growth in operating earnings also provided a boost in net income and helped offset the effect of higher net interest expense from purchases of new equipment with J.B

Hunt’s revolving debt. Aligned with J.B Hunt’s managerial guidance, we expect to see a 3-5% increase in annual interest expense. Distribution J.B. Hunt engages in multiple forms of logistical solutions. Since 1989 they have been leading the industry in intermodal transportation solutions by owning the largest fleet of containers that is committed to work in coordination with BNSF and Norfolk Southern. Their Dedicated Contract Service business segment specializes in the design, development, and execution of supply chains. J.B. Hunt has a fleet of trucks ranging from flatbeds to refrigerated trucks to help meet any all customer needs.XXI Suppliers J.B. Hunt relies heavily on rail for its intermodal segment. Contracts with BNSF in the west and Norfolk Southern in the east have positioned J.B Hunt to be at the front of the intermodal market. Outside of the intermodal segment, J.B. Hunt relies on private contracts to coordinate, develop, and execute logistical solutions for various firms that need produces to be shipped. For trucks and other equipment, J.B. Hunt relies on domestic wholesalers to grow their asset-backed company. Although it may seem to have a high barrier for entry into the industry, the infrastructure built for the trucking industry makes it easy for an individual to get a loan and buy a truck and develop a business overnight. Recent Earnings and guidance Fourth quarter earnings for J.B. Hunt were released on Feb 24. Investors were pleased with the results. The company experienced strong growth in earnings and operating income while revenues fell short of predictions. Fourth quarter earnings were $110 million, up 19.5% from the previous year’s quarter. Operating earnings followed suit being up 19% year-over-year. Earnings per share was also up a surprising 21% year-over-year to 93 cents per share. Unfortunately, J.B. Hunt missed overall revenue. Operating income growth reflects higher revenue through all business segments and is currently benefiting from the rapid fall in fuel prices. This canceled out J.B Hunt’s increased wage expense they had to pay to hire and retain drivers. J.B. Hunt has a strong market position going forward. We are confident that overall revenues will increase by 9-12% in 2015. We are also confident the highly levered trucking firm will incur about $640 million in capital expenditures, due to clear managerial guidance. These capital expenditures will go to replacing 3,300 trucks, 300-500 containers and 4,000 trailers. The expenditures will also go towards adding 1,000 trucks, 5,000 containers, and 1,000 trailers along with updating facilities and internal technology. J.B Hunt is currently the largest intermodal player with a growing 25% market share. For most producers, transportation of goods makes up their greatest cost. J.B Hunt’s size allows for them to reduce costs and increase capacity through collaborative means. As the economy recovers, the demand for freight will continue to grow moving forward.

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Competition J.B Hunt’s intermodal segment competes with other intermodal companies, and sometimes, railroad companies. The DCS segment competes with customers’ private fleets, private fleet outsourcing companies, companies that lease equipment, truckload carriers, and local service providers. Their ICS segment competes with third party logistics companies and freight brokers. Lastly, their trucking segment competes with thousands of other smaller trucking companies, however many of these companies are not big enough to operate across North America like JBHT does. JBHT’s top competitors are Landstar System Inc, Schneider National Inc, and Swift Transportation Company, Old Dominion Freight Line, and Knight Transportation. The following chart compares J.B Hunt to Landstar System, Swift Transportation, Old Dominion Freight Line, Knight Transportation and the trucking industry averages. J.B Hunt clearly has the largest market cap out of all of these companies with a cap of $9.96 billion. J.B Hunt generated significantly higher revenue and net income compared to the other companies and the industry average with $6.17 billion and $374.79 million respectively. It also has a P/E ratio of 27.06 which is higher than the industry average by 1.00. JBHT’s P/E ratio is high relative to the overall market, but we believe it reflects the high level of growth to come. JBHT also has the highest EPS of $3.16 per share indicating that it is the most profitable company in comparison with its competitors. We believe JBHT has been able to outperform their competitors due to the intermodal services they offer. Intermodal services account for roughly 60% of its total revenue, equaling $3.72 billion. J.B Hunt’s intermodal segment has been the industry leader during the last ten years. They compete with other companies on a number of different variables such as price, timeliness of deliveries, capacity, and carrier availability for logistical purposes.

Variables JBHT LSTR SWFT ODFL Industry

Market Cap

9.69B 3.15B 4.02B 6.25B

Employees 20158 1211 21100 16443 4.8K

Revenue 6.17B 3.19B 4.30B 2.79B 1.19B

Gross margin

0.18 0.21 0.19 0.29 0.19

EBITDA (millions)

926.04 249.80 582.63 597.06 144.71

Operating margin

0.1 0.07 0.08 0.16 0.07

Profit Margin

0.07 0.04 0.04 0.09 0.06

Net Income

(millions) 374.79 138.81 161.15 267.51

EPS 3.16 3.07 1.12 3.1 0.78

P/E 27.06 22.87 25.25 23.48 26.06

PEG (5 year

expected) 1.6 1.18 0.96 0.96 1.17

P/S 1.63 0.99 0.94 2.25 0.89

Catalysts for Growth or Change Oil prices With oil prices decreasing, the trucking companies’ lowered expenses allow for an increase in operating margins. One of J.B. Hunt’s largest expenses is fuel. While lower oil prices reduces their operating expenses, it is important to note that is also increases demand for their services. Lower fuel prices means the trucking companies can yield lower shipping rates, increasing their attractiveness as a mode of transportation. Once crude oil prices begin to start stabilizing around the low $50 range, which we are confident is happening now, J.B. Hunt is in the driver seat to directly benefit. This also leads to increased consumer spending meaning a larger demand for goods and services using transportation as a means to transport products from producers to consumers. On the other hand, the decreasing oil prices reduces a major revenue stream. Since more oil is being produced domestically and transported via rail to refineries with the decrease in oil prices is making domestic production less economical for producers to extract oil since they are losing money by operating. J.B. Hunt allocates 60% of their revenue to intermodal services. If the railroads start losing capacity, so will J.B. Hunt. However, due to the trucking companies growing diverse business segments, we are confident any negative effects from the railroads will be balanced out from increased trucking demand. Consumer spending In the event consumer spending increases, the transportation industry would experience a direct increase in demand for their services. More consumer spending means higher sales for companies leading to increased demands for industrial goods, coal, and food and consumer goods. The higher sales would be an indicator to more transportation usage, which would increase demand for J.B. Hunt’s services. Whether customers decide to ship their product via rail or truck, J.B. will benefit from either mode. 60% of their revenue comes from their intermodal service, which involves working with the rails to provide a unique service.XXII A potential catalyst to the increase in consumer spending is when our economy will start to feel its impact. Research shows that income is up but consumer spending is down. This implies that people are saving their cash savings rather than putting it back into the economy. When this begins to happen will be crucial for this industry. Coal The government, specifically the EPA, is pushing for cleaner energy products and reducing CO2 emissions. Coal is an environmentally harmful product that is widely used by energy companies. There has been increased pressures from the government to restrict domestic coal use and a push towards other sustainable resources such as natural gas. This change in government policy would negatively affect J.B. Hunt’s intermodal segment. 60% of the trucking companies’ revenue comes from their JBI segment. The JBI segment deals with supplying the railroads a joint transportation service. Therefore if there is a reduction in coal use, then J.B.Hunt’s capacity would take a hit indirectly through the railroads losing capacity.XXIII While we believe the government will begin to reduce coal use, we are confident J.B. Hunt’s growth in their

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ICS segment will counterbalance the negative effects from a reduction in coal transportation.

The demand for transportation services is correlated with strong real GDP growth. As real GDP continues to grow, trade volume will grow through imports and exports. The increase is capacity will set up highly leveraged companies for success in 2015. Higher leveraged companies will have more money for capital expenditures to handle the increase in volume. Their diverse business segments and customer base is one of their strong investment positives. While the outlook for the oil market is purely speculation at this point, J.B. Hunt’s strong intermodal demand allows them to benefit either way the prices move. If oil prices stay low, transportation demand via truck will remain strong and J.B. Hunt is in the driver seat to retain those benefits. If oil prices rise, their strong intermodal demand will allow them to balance their higher expenses with higher railroad demand. J.B Hunt retains an industry leading P/E ratio, strong operating margin ratio, and strong historical returns to their shareholders.

J.B. Hunt’s exposure to direct risks affecting the trucking industry as a whole. Tightening regulations, which are calling for limited hours of service for drivers, the EPA’s constant microscope on the industries emissions, and unusual weather all could hinder J.B Hunt’s ability to fulfill demand. Finding ways to hire more drivers is an uphill climb as well. The industry is facing a deficit in the volume of experienced drivers due to an ageing population. While J.B. Hunt is already significantly leveraged, and increasing their capital expenditures, they are going to have to get creative to offset the added expenses. Our nation’s ambition to become more environmentally friendly hurts J.B. Hunt along with the rest of the industry. If the government seeks to reduce greenhouse emissions, trucking companies demand will decrease and they will have to purchase more fuel efficient trucks, a huge effect on their bottom line if not aided by growth in their other segments. The trucking companies’ heavy investment in intermodal service creates exposure to railroad risk. Railroads are currently under pressure to purchase new locomotives derived from the new tier 4 air quality regulation. The aforementioned railroad risk place added concerns over capacity issues. Rising costs and

capacity issues are the two key negatives to look out for in 2015.XXIV

We generated J.B Hunt’s intrinsic values using the enterprise Discounted Cash Flow (DCF) valuation, enterprise Economic Profit (EP) valuation, Dividend Discount Model (DDM), and relative P/E valuation. Our analysis generated a recommendation of a HOLD. We believe J.B Hunt does have some investment potential in the future, however nothing drastic enough to make it an immediate buy. The DCF and EP valuation methods yielded an intrinsic value of $93.08 per share. This is slightly higher than the stock price of $90.18 as of April 17th, 2015. The DDM valuation yielded an intrinsic value of $80.84 per share which is a 10.36% discount from the current stock price. In regards to our relative P/E valuation, we generated an intrinsic value of $62.62 using the 2015 P/E estimation and an intrinsic value of $58.74 using the 2016 P/E estimation. The relative 2015 P/E valuation and the relative 2016 P/E valuation yielded a 30.6% discount from the stock price and a 34.9% discount from the stock price, respectively. General Assumptions Continuing Value To determine the continuing value assumption, we considered real GDP growth, and the cost of debt due to the fact that J.B Hunt is highly levered. Demand for transportation services is linked to the health of the economy and we do not expect any drastic economic growth going forward. We also considered how volatile J.B Hunt’s earnings are to changes in interest rates and the cost of debt. For these reasons, we decided to choose a conservative CV growth of 4.20%. Revenue Decomposition We expect their JBI business segment’s revenue to increase from 2015-2020 by an average of 5%. The JBI segment accounts for the majority of J.B Hunt’s profits and we expect this to continue into the future due to the contracts they have with the major rail companies. Management guidance also revealed that they plan to spend $165 million to expand the JBI segment in 2015. The DCS segment is expected to decrease from 2015-2020 by an average of 1.5% due to the amount of expiring contracts and the fact that this segment has not grown much over time. JBT has been the weakest segment in recent years. We expect this to continue because J.B Hunt has been shifting its focus to supply-chain management and intermodal functions as supply chains have become increasingly more complex. The ICS segment is directly related to the DCS and JBI segments so we expect this segment to only grow moving forward due to our optimistic expectations for the JBI segment. The ICS segment is also has the strongest year over year growth out of all of the segments. We expect it to grow by an average of 9.9% from 2015-2020.

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Income Statement J.B Hunt’s two largest expense categories are rent and purchased transportation expenses and salaries, wages, and benefits expenses. These two categories will undoubtedly continue to account for the majority of their expenses moving forward. These two expense items have only increased over time based on the historical data in our model, and we project them to continue to increase from 2015-2020. In order for JBHT to continue to grow and be an industry leader in the future, they must expand their fleet and contract the necessary amount of drivers to meet their customers’ needs. We expect rent and purchased transportation expenses to grow by an average of 8% from 2015-2020. Similarly, we predict salaries, wages and benefits expenses to grow by an average of 8.4% from 2015-2020. Balance Sheet The trucking industry is extremely capital intensive so it is no surprise that net PPE is JBHT’s largest asset account. For 2015, we used management’s guidance to project net PPE. In 2015, they plan to spend $640 million in capital expenditures, so we grew gross PPE accordingly. From 2016-2020 we grew capital expenditures by looking at historical growth and applying this rate going forward. Due to the fact that J.B Hunt invests so much in PPE, they are highly levered. Therefore it is no surprise that long-term debt accounts for a large portion of their liabilities. We forecasted long-term debt by making it a portion of their long-term assets and using this percentage as the growth in long-term debt. This allowed us to project PPE while growing long-term debt accordingly. Weighted Average Cost of Capital (WACC) Cost of Equity We used the Capital Asset Pricing Model (CAPM) to estimate the cost of equity for J.B Hunt. For the risk-free rate we used a 30 Year Treasury Bond which was 2.522%. For the market risk premium we took the average of the historical risk premiums over the last 87 years between 30 Year Treasury Bonds and the S & P 500. This gave us a value of 4.62%. To calculate the beta of the equity we averaged the weekly beta of the last four years to give us a beta of 0.935. Cost of Debt To get the cost of debt we identified the outstanding bond with the longest yield to maturity for JBHT. This gave us a pre-tax cost of debt of 3.04% Capital Structure and WACC We do not believe J.B Hunt’s capital structure will change in our forecast period based on managerial guidance. JBHT’s current capital structure, the cost of equity, the cost of debt, helped us calculate a WACC of 6.48% Discounted Cash Flow and Economic Profit Analysis Our DCF and EP valuation for J.B Hunt resulted in a per share price of $93.08. Aligned with management’s capital expenditure guidance, we expect capital expenditures to be $639.53 million in 2015, decreasing the trucking companies

free cash flows. The rest of our forecasted free cash flows grew at the average capital expenditure growth percentage. After discounting each year’s free cash flows and the CV by our WACC of 6.48%, we derived an operating value of $12.25 billion dollars. In order or calculate J.B Hunt’s value of equity, we backed out their debt (short term, long term, and revolving), present value of operating leases, underfunded pensions, and employee stock options. After adding back their excess cash and accounting for the fraction of the fiscal year that has elapsed, our calculation resulted in a final DCF/EP intrinsic value of $93.08 per share, as of April 17th, 2015. Due to the economic, industry, and company-specific analysis incorporated into our model, we placed a strong emphasis on this valuation in determining our target price. Dividend Discount Model (DDM) By discounting the forecasted dividends of J.B Hunt by our expected cost of equity, 6.98%, our dividend discount valuation resulted in a lower intrinsic value of $80.84. We expect their payout ratio to remain stable moving forward, so we forecasted their dividends based on their average payout percentage, historically. Due to the lower DDM intrinsic value, we gave this valuation method less emphasis in determining our target price. Relative Valuation For our relative valuation, we used the P/E and PEG ratios for 2015 and 2016. By eliminating the outliers, we came up with 8 peer companies that are all comparable in size and revenue to J.B Hunt. After calculating their peer’s average P/E ratios, we came up with an industry average of 27.3 and 25.4 in 2015 and 2016 respectively. In addition, we also derived their peer’s average PEG ratios, which calculated to 4.5 and 4.2 in 2015 and 2016 respectively. In order to obtain J.B Hunt’s relative 2015 P/E value, we multiplied our 2015 EPS estimate, for J.B Hunt, by their peer’s 2015 average P/E ratio. By applying the same process for the year 2016, we calculated J.B Hunt’s implied value, through the relative P/E valuation, of $62.62 per share and $58.74 per share in 2015 and 2016 respectively. In regards to the PEG ratio, we obtained JB Hunt’s 2015 implied value through the relative PEG ratio by multiplying their 2015 EPS estimate by their 5 year EPS estimated growth, multiplied again by their peer’s average PEG ratio. While the relative P/E ratio derived low intrinsic values for J.B Hunt, the PEG ratio calculated even lower, more unrealistic, values of $22.87 and $21.39 per share, in 2015 and 2016 respectively.

Our valuation model is sensitive to changes in key assumptions that were made for inputs. We used data to analyze the levels of sensitivity for various inputs. Beta Our beta calculation involves the average of raw betas calculated for many different periods. Removing one can

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drastically change our average beta and influence our value. Changing our beta slightly from 0.935 to 0.685 increased our price per share to $131.26, nearly a 40% increase. However we this we remain confident that our beta is consistent with the market and reflects the true beta for our companies future. Risk Free Rate The yield on Treasury bonds have been at their lowest levels for years. With the Fed potentially reducing their tapering program, it is crucial to analyze. An increase in 50 bases points would bring our price down to $83.47 per share. The face that a change like this more and more likely, we are able to see how the reliance of equity value on the current economic environment can change. Cost of Equity and WACC As the key measures used to discount future free cash flows or dividends, WACC and Cost of Equity show a significant amount of influence on our intrinsic value. If the company were to increase its debt and become more risky, we see a significant decrease in price from $92.84 to $81.59 with an increase in only 50 bases points to WACC. However, we do not see this happening given company guidance. Cost of Debt With J.B Hunt’s credit rating we do not see change in its cost of debt anytime in the near future. We expect the company to exhibit financial health and strength, but the potential for the risk free rate rising in the near future is important to look at for fluctuations in JBHT's cost of debt. However, even with a 50 bases point increase in cost of debt, the price per share decreases from $93.08 to $91.70. This slight decrease of 2.0% shows stability for their cost of debt moving forward. CV Growth Analyzing the effect of different CV growth assumptions shows the differences between an optimistic and pessimistic analyst. Using an optimistic outlook of 5.2% growth, we see a price increase from $93.08 to $155.10, a 22.9% increase. Changing our analysis from a hold to a buy. However, given the nature of the trucking industry, we do not see this as being feasible. Marginal Tax Rate and Equity Risk Premium Even though we do not anticipate any changes to these assumptions, it is still interesting to look at. An increase in marginal tax rate of 50 bases points would only bring the price down by a few cents. And if the equity risk premium changed from our 80 year historical average by a decrease of 25 bases points, the stock price would increase by 8 dollars, which is significant but the likelihood of this change happening is minimal.

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i Yahoo! Inc. (2015). Yahoo! Retrieved from Yahoo! Finance: http://finance.yahoo.com/ II Mataloni, L., Shoemaker, K., & Aversa, J. (2015, March 27). U.S. Department of Commerce. Retrieved from National Income and Product Accounts: https://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm III ECONODAY. (2015). Bloomberg. Retrieved from Economic Calendar : http://www.bloomberg.com/markets/economic-calendar IV Technology, O. o. (n.d.). United Sates Department of Transportation. Retrieved from Economic Impact on Transportation : http://www.rita.dot.gov/bts/programs/freight_transportation/html/transportation.html V ECONODAY. (2015). Bloomberg. Retrieved from Economic Calendar : http://www.bloomberg.com/markets/economic-calendar VI S&P Capital IQ. (2014, December 9). S&Q Capital IQ. Retrieved from OUTLOOK 2015: A SEVENTH-YEAR STRETCH: http://www.netadvantage.standardandpoors.com/NASApp/NetAdvantage/i/displayStovallsSectorWatchEditorialStory.do?&context=StovallsSectorWatch&prefix=i&docId=1000625004 VII Yahoo! Inc. (2015). Yahoo! Retrieved from Bonds Center: http://finance.yahoo.com/bonds;_ylt=AwrC2Q6CVDRVeFgAmWaTmYlQ;_ylu=X3oDMTByMjB0aG5zBGNvbG8DYmYxBHBvcwMxBHZ0aWQDBHNlYwNzYw VIII Quality, O. o. (2015, April 17). EPA. Retrieved from Transportation and Air Quality : http://www.epa.gov/otaq/ IX Quality, O. o. (2014, December 19). EPA. Retrieved from Regulations & Standards: http://www.epa.gov/otaq/climate/regulations.htm X FMCSA. (2015, April 2). Federal Motor Carrier Safety Administration. Retrieved from Hours of Service: http://www.fmcsa.dot.gov/regulations/hours-of-service XI ECONODAY. (2015). Bloomberg. Retrieved from Economic Calendar : http://www.bloomberg.com/markets/economic-calendar XII ECONODAY. (2015). Bloomberg. Retrieved from Economic Calendar : http://www.bloomberg.com/markets/economic-calendar XIII IBISWorld. (2015). IBISWorld. Retrieved from Products & Markets: http://clients1.ibisworld.com/reports/us/industry/productsandmarkets.aspx?entid=1150 XIV ECONODAY. (2015). Bloomberg. Retrieved from Economic Calendar : http://www.bloomberg.com/markets/economic-calendar

XV Schmidt, A. (2015, January 2). Market Realist. Retrieved from An overview of J.B. Hunt Transport Services: http://marketrealist.com/2015/01/overview-j-b-hunt-transport-services/ XVI IBISWorld. (2015.). IBISWorld. Retrieved from Industry Outlook: http://clients1.ibisworld.com/reports/us/industry/industryoutlook.aspx?entid=1150 XVII Quality, O. o. (2014, December 19). EPA. Retrieved from Regulations & Standards: http://www.epa.gov/otaq/climate/regulations.htm XVIII Associations, A. T. (2013). ATA. Retrieved from Reports, Trends & Statistics: http://www.trucking.org/News_and_Information_Reports_Energy.aspx XIX Schmidt, A. (2015, January 2). Market Realist. Retrieved from An overview of J.B. Hunt Transport Services: http://marketrealist.com/2015/01/overview-j-b-hunt-transport-services/ XX IBISWorld. (2015.). IBISWorld. Retrieved from Industry Outlook: http://clients1.ibisworld.com/reports/us/industry/industryoutlook.aspx?entid=1150 XXI JB Hunt Transport, I. (2015). J.B. Hunt. Retrieved from Our Solutions: http://www.jbhunt.com/solutions/ XXII Schmidt, A. (2015, January 2). Market Realist. Retrieved from An overview of J.B. Hunt Transport Services: http://marketrealist.com/2015/01/overview-j-b-hunt-transport-services/ XXIII Schmidt, A. (2015, January 2). Market Realist. Retrieved from An overview of J.B. Hunt Transport Services: http://marketrealist.com/2015/01/overview-j-b-hunt-transport-services/ XXIV Schmidt, A. (2015, January 2). Market Realist. Retrieved from An overview of J.B. Hunt Transport Services: http://marketrealist.com/2015/01/overview-j-b-hunt-transport-services/

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Important Disclaimer This report was created by students enrolled in the Security Analysis (6F:112) class at the University of Iowa. The report was originally created to offer an internal investment recommendation for the University of Iowa Krause Fund and its advisory board. The report also provides potential employers and other interested parties an example of the students’ skills, knowledge and abilities. Members of the Krause Fund are not registered investment advisors, brokers or officially licensed financial professionals. The investment advice contained in this report does not represent an offer or solicitation to buy or sell any of the securities mentioned. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Krause Fund may hold a financial interest in the companies mentioned in this report.

J.B. Hunt Transport Services, Inc.

Key Assumptions of Valuation Model

Ticker Symbol JBHT

Current Share Price $90.18

Current Model Date 4/17/2015

Fiscal Year End Dec. 31

Pre‐Tax Cost of Debt (2024) 3.04%

Beta 0.935

Risk‐Free Rate 2.52%

Equity Risk Premium 4.62%

cost of equity 6.98%

WACC 6.48%

CV Growth of NOPLAT 4.20%

CV Growth of EPS 4.20%

Current Dividend Yield 1.00%

Marginal Tax Rate 39.42%

Effective Tax Rate 38.01%

CV Growth


Revenue Decomposition

Fiscal Years Ending Dec. 31 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E

JBIRevenue (in millions) 3,071.00 3,456.00 3,687.00 4,150.14 4,608.45 5,003.08 5,410.86 5,826.10 6,070.79

Percent Change in Revenue 14.89% 12.54% 6.68% 12.56% 11.04% 8.56% 8.15% 7.67% 4.20%Loads 1,415,663 1,593,511 1,700,374 1,836,404 1,964,952 2,043,550 2,125,292 2,210,304 2,232,407

Percent Change in Loads 13.41% 12.56% 6.71% 8.00% 7.00% 4.00% 4.00% 4.00% 1.00%

Revenue per load $2,169 $2,169 $2,169 $2,259.9 $2,345.3 $2,448.2 $2,545.9 $2,635.9 $2,719.4

Percent Change in Revenue per load 1.31% 0.00% 0.00% 4.19% 3.78% 4.39% 3.99% 3.53% 3.17%

DCSRevenue (in millions) 1,080.00 1,231.00 1,394.00 1,462.75 1,593.79 1,716.50 1,806.54 1,937.32 2,018.69

Percent Change in Revenue 4.75% 13.98% 13.24% 4.93% 8.96% 7.70% 5.25% 7.24% 4.20%Loads 1,522,740 1,835,872 2,101,707 2,205,364 2,402,923 2,587,938 2,723,689 2,920,858 3,043,535

Percent Change in Loads 5.42% 20.56% 14.48% 4.93% 8.96% 7.70% 5.25% 7.24% 4.20%

JBTRevenue (in millions) 484.00 391.00 386.00 374.19 390.93 398.62 429.71 457.23 471.52

Percent Change in Revenue -3.97% -19.21% -1.28% -3.06% 4.47% 1.97% 7.80% 6.40% 3.13%Loads 449,366 386,875 370,555 359,220 375,287 382,669 412,517 438,931 452,651

Percent Change in Loads 1.01% -13.91% -4.22% ‐3.06% 4.47% 1.97% 7.80% 6.40% 3.13%

ICSRevenue (in millions) 456.00 537.00 718.00 816.42 924.70 1,016.89 1,122.51 1,206.70 1,262.29

Percent Change in Revenue 28.09% 17.76% 33.71% 13.71% 13.26% 9.97% 10.39% 7.50% 4.61%Loads 326,574 388,987 453,410 515,573 583,937 642,214 708,940 762,111 797,244

Percent Change in Loads 28.79% 19.11% 16.56% 13.71% 13.26% 9.98% 10.39% 7.50% 4.61%JBI (in millions) 3,071 3,456 3,687 4,150 4,608 5,003 5,411 5,826 6,071DCS (in millions) 1,080 1,231 1,394 1,463 1,594 1,717 1,807 1,937 2,019ICS (in millions) 456 537 718 816 925 1,017 1,123 1,207 1,262JBT (in millions) 484 391 386 374 391 399 430 457 472Total 5,091.00 5,615.00 6,185.00 6,803.50 7,517.87 8,135.08 8,769.62 9,427.34 9,823.29


Income Statement


Income Statement Full Statement Summary

Sales 5,055.00 5,585.00 6,165.00 6,803.50 7,517.87 8,135.08 8,769.62 9,427.34 9,823.29

Operating Expenses:

COGS excluding D&A 4,221.48 4,657.57 5,129.20 5,670.63 6,291.07 6,818.72 7,350.58 7,901.87 8,164.00

Rents and Purchased Transportation 2,485.64 2,805.57 3,085.28 3,460.60 3,807.05 4,084.63 4,403.23 4,733.47 4,862.53

Salaries, wages and employee benefits 1,037.53 1,138.21 1,290.40 1,428.20 1,605.06 1,729.52 1,864.42 2,004.25 2,088.43

Fuel and Fuel Taxes 465.87 455.93 453.92 462.64 526.25 622.90 671.49 721.85 752.17

Operating Supplies and Expenses 178.61 202.70 218.54 242.83 268.33 290.36 313.00 336.48 350.61

Insurance Claims 53.83 55.16 81.06 76.37 84.38 91.31 98.44 105.82 110.26

Depreciation & Amortization Expense 229.20 253.40 294.50 337.26 386.22 442.30 506.51 580.05 664.26

Gross Income 604.30 673.60 741.70 795.61 840.57 874.07 912.53 945.42 995.03

SG&A Expense 44.70 69.60 77.40 76.24 75.11 73.99 72.88 71.79 70.72

Other Operating Expense 29.50 32.30 38.80 35.75 32.94 30.35 27.97 25.77 23.74

EBIT (Operating Income) 530.20 571.70 625.50 683.62 732.52 769.73 811.69 847.86 900.56

Nonoperating Income ‐ Net 0.00 5.07 6.09 7.08 8.02 7.06 6.06 7.02 7.04

Nonoperating Interest Income 0.00 0.07 0.09 0.00 0.31 0.21 0.33 0.26 0.28

Other Income (Expense) 0.00 5.00 6.00 7.00 8.00 7.00 8.00 7.00 7.00

Interest Expense 25.56 23.21 27.03 32.67 34.95 35.10 37.95 43.56 47.30

Pretax Income 504.60 553.60 604.60 636.86 681.25 720.37 759.35 790.02 838.94

Income Taxes 194.30 211.20 229.80 251.05 268.55 283.97 299.33 311.43 330.71

Income Taxes ‐ Current Domestic 173.20 163.10 150.50 161.73 173.01 182.94 192.84 200.63 213.05

Income Taxes ‐ Deferred Domestic 21.05 48.08 79.34 89.31 95.54 101.02 106.49 110.79 117.65

Consolidated Net Income 310.40 342.40 374.80 385.81 412.70 436.40 460.01 478.59 508.23

Net Income 310.40 342.40 374.80 385.81 412.70 436.40 460.01 478.59 508.23

Net Income available to Common 310.40 342.40 374.80 385.81 412.70 436.40 460.01 478.59 508.23

EPS 2.59 2.87 3.16 3.30 3.56 3.79 4.01 4.19 4.49

Total Shares Outstanding 117.50 117.20 116.60 115.48 114.78 114.74 113.75 112.82 111.95

Dividends per Share 0.56 0.45 0.80 0.82 0.89 0.95 1.00 1.05 1.12


Balance Sheet


Balance Sheet Full StatementSummary

Assets

Cash & Short‐Term Investments 5.59 5.83 5.96 309.41 507.11 820.76 1,257.01 1,649.18 2,153.12

Accounts Receivables, Net 466.00 568.50 653.77 655.90 724.77 784.28 845.45 908.86 947.03

Other Receivables 2.40 7.50 79.80 29.19 32.25 34.90 37.62 40.44 42.14

Inventories 23.07 26.25 27.74 30.89 34.13 36.93 39.81 42.80 44.60

Prepaid Expenses 50.11 64.19 78.53 114.76 126.81 137.22 147.93 159.02 165.70

Miscellaneous Current Assets 7.36 7.92 34.27 36.69 40.55 43.88 47.30 50.85 52.98

Total Current Assets 554.50 680.20 880.10 1,176.85 1,465.63 1,857.98 2,375.12 2,851.15 3,405.57

Net Property, Plant & Equipment 1,885.00 2,112.00 2,483.00 2,785.07 3,105.53 3,427.93 3,745.77 4,051.89 4,311.02

Property, Plant & Equipment ‐ Gross 2,905.00 3,260.00 3,720.00 4,359.53 5,066.21 5,830.91 6,655.25 7,541.42 8,464.81

Accumulated Depreciation 1,019.20 1,147.60 1,237.20 1,574.46 1,960.68 2,402.97 2,909.48 3,489.53 4,153.79

Total Investments and Advances 11.20 12.70 13.50 15.09 16.86 18.85 21.07 23.55 26.32

Long‐Term Note Receivable 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Other Assets 13.44 14.30 20.40 15.32 16.92 18.31 19.74 21.22 22.11

Total Assets 2,465.00 2,819.00 3,397.00 3,992.33 4,604.95 5,323.07 6,161.70 6,947.81 7,765.02

Liabilities & Shareholders' Equity

ST Debt & Curr. Portion LT Debt 100.00 250.00 250.00 250.00 183.00 183.00 250.00 250.00 250.00

Accounts Payable 266.70 305.50 325.80 365.04 403.37 436.49 470.53 505.82 527.07

Income Tax Payable 0.75 2.49 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Other Current Liabilities 135.30 154.30 195.20 170.09 187.95 203.38 219.24 235.68 245.58

Total Current Liabilities 502.80 712.30 771.10 785.13 774.32 822.86 939.77 991.51 1,022.65

Long‐Term Debt 585.30 458.40 683.50 748.43 819.75 901.29 994.64 1,101.47 1,223.74

Provision for Risks & Charges 11.20 12.70 13.50 14.55 15.69 16.91 18.23 19.65 21.18

Deferred Tax Liabilities 531.60 578.00 678.40 756.21 842.95 939.64 1,047.41 1,167.55 1,301.47

Other Liabilities 41.85 45.57 46.06 48.20 50.44 52.78 55.23 57.80 60.48

Total Liabilities 1,673.00 1,807.00 2,193.00 2,352.52 2,503.14 2,733.48 3,055.28 3,337.97 3,629.53

Common Stock 208.77 228.27 249.31 504.18 765.45 1,035.47 1,316.16 1,569.03 1,821.91

Retained Earnings 1,985.00 2,275.00 2,556.00 2,846.62 3,157.36 3,485.12 3,831.25 4,191.81 4,574.59

Cumulative Translation Adjustment/Unrealized For. Exch. Gain 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Other Appropriated Reserves 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Treasury Stock (1,402.00) (1,491.00) (1,601.00) (1,711.00) (1,821.00) (1,931.00) (2,041.00) (2,151.00) (2,261.00)

Total Shareholders' Equity 791.90 1,012.50 1,204.50 1,639.80 2,101.81 2,589.59 3,106.42 3,609.84 4,135.50

Total Equity 791.90 1,012.50 1,204.50 1,639.80 2,101.81 2,589.59 3,106.42 3,609.84 4,135.50

Total Liabilities & Shareholders' Equity 2,465.00 2,819.00 3,397.00 3,992.33 4,604.95 5,323.07 6,161.70 6,947.81 7,765.02


Cash Flow Statement

Fiscal Years Ending Dec. 31 2012 2013 2014

Operating Activities

Net Income 310.40 342.40 374.80

Depreciation, Depletion & Amortization 229.20 253.40 294.50

Deferred Taxes & Investment Tax Credit 0.00 48.08 79.34

Other Funds 33.67 27.02 28.99

Funds from Operations 573.20 670.90 777.63

Changes in Working Capital (25.14) (96.51) (130.84)

Receivables (42.66) (102.51) (157.57)

Accounts Payable 15.10 11.53 15.28

Other Accruals 7.25 23.11 41.23

Other Assets/Liabilities (4.83) (28.64) (29.79)

Net Operating Cash Flow 548.00 574.40 646.80

Investing Activities

Capital Expenditures (439.50) (493.40) (808.57)

Capital Expenditures (Fixed Assets) (439.50) (493.40) (808.57)

Capital Expenditures (Other Assets) 0.00 0.00 0.00

Sale of Fixed Assets & Businesses 69.82 50.93 148.86

Other Funds 0.09 (0.04) 0.03

Other Uses 0.00 (0.04) 0.00

Other Sources 0.09 0.00 0.03

Net Investing Cash Flow (369.60) (442.50) (659.70)

Financing Activities

Cash Dividends Paid (83.43) (52.81) (93.60)

Change in Capital Stock (52.40) (123.30) (141.10)

Repurchase of Common & Preferred Stk. (52.40) (132.70) (148.40)

Sale of Common & Preferred Stock 0.00 9.40 7.32

Issuance of Long‐Term Debt 1,605.70 1,933.80 231.10

Reduction in Long‐Term Debt (1,668.20) (1,911.20) (2,360.70)

Other Funds 20.09 21.95 16.65

Net Financing Cash Flow (178.30) (131.60) 13.03

Net Change in Cash 0.14 0.24 0.13


Cash Flow Statement

Fiscal Years Ending Dec. 31 2015E 2016E 2017E 2018E 2019E 2020E

Operating Activities

Net Income 385.81 412.70 436.40 460.01 478.59 508.23

Depreciation, Depletion & Amortization 337.26 386.22 442.30 506.51 580.05 664.26

Deferred Taxes 77.81 86.74 96.69 107.78 120.14 133.92

Funds from Operations 800.88 885.66 975.38 1,074.30 1,178.78 1,306.41Changes in Working Capital

Receivables 48.48 (71.93) (62.15) (63.90) (66.23) (39.87)

Inventories (3.15) (3.24) (2.80) (2.88) (2.99) (1.80)

Prepaid Expenses (36.23) (12.05) (10.41) (10.70) (11.09) (6.68)

Misc. Current Assets (2.42) (3.85) (3.33) (3.42) (3.55) (2.14)

Accounts Payable 39.24 38.33 33.12 34.05 35.29 21.24

Income Taxes Payable 0.00 0.00 0.00 0.00 0.00 0.00

Other Current Liabilities (25.11) 17.86 15.43 15.86 16.44 9.90

Net Operating Cash Flow 821.68 850.77 945.23 1,043.31 1,146.65 1,287.07Investing Activities

Capital Expenditures (639.53) (706.68) (764.70) (824.34) (886.17) (923.39)

Change in LT Investments (1.59) (1.78) (1.99) (2.22) (2.48) (2.77)

Change in other assets 5.08 (1.61) (1.39) (1.43) (1.48) (0.89)

Net Investing Cash Flow (636.03) (710.06) (768.07) (827.99) (890.13) (927.05)Financing Activities

Cash Dividends Paid (95.19) (101.96) (108.64) (113.88) (118.04) (125.44)

Change in provision for risks 1.05 1.13 1.22 1.32 1.42 1.53

Change in other liabilities 2.14 2.24 2.34 2.45 2.57 2.68

Change in Current Portion LT Debt 0.00 (67.00) 0.00 67.00 0.00 0.00

Repurchase of Common & Preferred Stk. (110.00) (110.00) (110.00) (110.00) (110.00) (110.00)

Proceeds from Issuance of Common Stock 254.87 261.27 270.02 280.69 252.87 252.87

Issuance of Long‐Term Debt 64.93 71.32 81.54 93.35 106.83 122.27

Net Financing Cash Flow 117.80 57.00 136.49 220.93 135.65 143.92Net Change in Cash 303.45 197.70 313.65 436.24 392.17 503.94Beg Cash 5.96 309.41 507.11 820.76 1,257.01 1,649.18

End Cash 309.41 507.11 820.76 1,257.01 1,649.18 2,153.12


Common Size Income Statement


Sales 5,055.00 5,585.00 6,165.00 6,803.50 7,517.87 8,135.08 8,769.62 9,427.34 9,823.29

COGS excluding D&A 83.51% 83.39% 83.20% 83.35% 83.68% 83.82% 83.82% 83.82% 83.11%

Rents and Purchased Transportation 49.17% 50.23% 50.05% 50.87% 50.64% 50.21% 50.21% 50.21% 49.50%

Salaries, wages and employee benefits 20.52% 20.38% 20.93% 20.99% 21.35% 21.26% 21.26% 21.26% 21.26%

Fuel and Fuel Taxes 9.22% 8.16% 7.36% 6.80% 7.00% 7.66% 7.66% 7.66% 7.66%

Operating Supplies and Expenses 3.53% 3.63% 3.54% 3.57% 3.57% 3.57% 3.57% 3.57% 3.57%

Insurance Claims 1.06% 0.99% 1.31% 1.12% 1.12% 1.12% 1.12% 1.12% 1.12%

Depreciation & Amortization Expense 4.53% 4.54% 4.78% 4.96% 5.14% 5.44% 5.78% 6.15% 6.76%

Gross Income 11.95% 12.06% 12.03% 11.69% 11.18% 10.74% 10.41% 10.03% 10.13%

SG&A Expense 0.88% 1.25% 1.26% 1.12% 1.00% 0.91% 0.83% 0.76% 0.72%

Other Operating Expense 0.58% 0.58% 0.63% 0.53% 0.44% 0.37% 0.32% 0.27% 0.24%

EBIT (Operating Income) 10.49% 10.24% 10.15% 10.05% 9.74% 9.46% 9.26% 8.99% 9.17%

Nonoperating Income ‐ Net 0.00% 0.09% 0.10% 0.10% 0.11% 0.09% 0.07% 0.07% 0.07%

Other Income (Expense) 0.00% 0.09% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Interest Expense 0.51% 0.42% 0.10% 0.10% 0.11% 0.09% 0.09% 0.07% 0.07%

Unusual Expense ‐ Net 0.00% 0.00% 0.44% 0.48% 0.46% 0.43% 0.43% 0.46% 0.48%

Pretax Income 9.98% 9.91% 9.81% 9.36% 9.06% 8.86% 8.66% 8.38% 8.54%

Income Taxes 3.84% 3.78% 9.81% 9.36% 9.06% 8.86% 8.66% 8.38% 8.54%

Income Taxes ‐ Current Domestic 3.43% 2.92% 3.73% 3.69% 3.57% 3.49% 3.41% 3.30% 3.37%

Income Taxes ‐ Deferred Domestic 0.42% 0.86% 2.44% 2.38% 2.30% 2.25% 2.20% 2.13% 2.17%

Consolidated Net Income 6.14% 6.13% 1.29% 1.31% 1.27% 1.24% 1.21% 1.18% 1.20%

Net Income 6.14% 6.13% 6.08% 5.67% 5.49% 5.36% 5.25% 5.08% 5.17%

Net Income available to Common 6.14% 6.13% 6.08% 5.67% 5.49% 5.36% 5.25% 5.08% 5.17%

EPS 0.05% 0.05% 6.08% 5.67% 5.49% 5.36% 5.25% 5.08% 5.17%

Total Shares Outstanding 2.32% 2.10% 1.87% 1.69% 1.53% 1.40% 1.29% 1.19% 0.00%

Dividends per Share 0.01% 0.01% 0.01% 0.01% 0.02% 0.02% 0.02% 0.02% 0.02%


Common Size Balance Sheet


Assets

Cash & Short‐Term Investments 0.11% 0.10% 0.10% 4.55% 6.75% 10.09% 14.33% 17.49% 21.92%

Accounts Receivables, Net 9.22% 10.18% 10.60% 9.64% 9.64% 9.64% 9.64% 9.64% 9.64%

Other Receivables 0.05% 0.13% 1.29% 0.43% 0.43% 0.43% 0.43% 0.43% 0.43%

Inventories 0.46% 0.47% 0.45% 0.45% 0.45% 0.45% 0.45% 0.45% 0.45%

Prepaid Expenses 0.99% 1.15% 1.27% 1.69% 1.69% 1.69% 1.69% 1.69% 1.69%

Miscellaneous Current Assets 0.15% 0.14% 0.56% 0.54% 0.54% 0.54% 0.54% 0.54% 0.54%

Total Current Assets 10.97% 12.18% 14.28% 17.30% 19.50% 22.84% 27.08% 30.24% 34.67%

Net Property, Plant & Equipment 37.29% 37.82% 40.28% 40.94% 41.31% 42.14% 42.71% 42.98% 43.89%

Property, Plant & Equipment ‐ Gross 57.47% 58.37% 60.34% 64.08% 67.39% 71.68% 75.89% 80.00% 86.17%

Accumulated Depreciation 20.16% 20.55% 20.07% 23.14% 26.08% 29.54% 33.18% 37.02% 42.29%

Total Investments and Advances 0.22% 0.23% 0.22% 0.22% 0.22% 0.23% 0.24% 0.25% 0.27%

Long‐Term Note Receivable 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Other Assets 0.27% 0.26% 0.33% 0.23% 0.23% 0.23% 0.23% 0.23% 0.23%

Total Assets 48.76% 50.47% 55.10% 58.68% 61.25% 65.43% 70.26% 73.70% 79.05%

Liabilities & Shareholders' Equity

ST Debt & Curr. Portion LT Debt 1.98% 4.48% 4.06% 3.67% 2.43% 2.25% 2.85% 2.65% 2.54%

Accounts Payable 5.28% 5.47% 5.28% 5.37% 5.37% 5.37% 5.37% 5.37% 5.37%

Income Tax Payable 0.01% 0.04% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Other Current Liabilities 2.68% 2.76% 3.17% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50%

Total Current Liabilities 9.95% 12.75% 12.51% 11.54% 10.30% 10.11% 10.72% 10.52% 10.41%

Long‐Term Debt 11.58% 8.21% 11.09% 11.00% 10.90% 11.08% 11.34% 11.68% 12.46%

Provision for Risks & Charges 0.22% 0.23% 0.22% 0.21% 0.21% 0.21% 0.21% 0.21% 0.22%

Deferred Tax Liabilities 10.52% 10.35% 11.00% 11.12% 11.21% 11.55% 11.94% 12.38% 13.25%

Other Liabilities 0.83% 0.82% 0.75% 0.71% 0.67% 0.65% 0.63% 0.61% 0.62%

Total Liabilities 33.10% 32.35% 35.57% 34.58% 33.30% 33.60% 34.84% 35.41% 36.95%

Common Stock 4.13% 4.09% 4.04% 7.41% 10.18% 12.73% 15.01% 16.64% 18.55%

Retained Earnings 39.27% 40.73% 41.46% 41.84% 42.00% 42.84% 43.69% 44.46% 46.57%

Cumulative Translation Adjustment/Unrealized For. Exch. Gain 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Other Appropriated Reserves 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Treasury Stock ‐27.73% ‐26.70% ‐25.97% ‐25.15% ‐24.22% ‐23.74% ‐23.27% ‐22.82% ‐23.02%

Total Shareholders' Equity 15.66% 18.12% 19.53% 24.10% 27.96% 31.83% 35.42% 38.29% 42.10%


Value Driver Estimation


NOPLAT CALCULATIONSales 5,055.00 5,585.00 6,165.00 6,803.50 7,517.87 8,135.08 8,769.62 9,427.34 9,823.29Depreciation & Amortization Expense 229.20 253.40 294.50 337.26 386.22 442.30 506.51 580.05 664.26COGS excluding D&A 4,221.48 4,657.57 5,129.20 5,670.63 6,291.07 6,818.72 7,350.58 7,901.87 8,164.00SG&A Expense 44.70 69.60 77.40 76.24 75.11 73.99 72.88 71.79 70.72**Beg. EBITA 530.20 571.70 625.50 683.62 732.52 769.73 811.69 847.86 900.56

+' Implied Interest on PV of Operating Leases 0.64 0.90 0.76 0.85 0.95 1.05 1.15 1.24 1.32End. EBITA 530.84 572.60 626.26 684.47 733.48 770.79 812.83 849.11 901.88Less: Adjusted TaxesTotal Income Tax Provision(Income Tax Expense) (194.30) (211.20) (229.80) (251.05) (268.55) (283.97) (299.33) (311.43) (330.71)+' Tax Shield on Interst Expense (int. expense*tax rate) (10.08) (9.15) (10.66) (12.88) (13.78) (13.83) (14.96) (17.17) (18.65)+' Tax shield on lease interest 0.25 0.35 0.30 0.34 0.38 0.41 0.45 0.49 0.52-' Tax on Interest or Investment Income (int. income*tax rate) 0.00 (1.97) (2.37) (2.76) (3.15) (2.76) (3.15) (2.76) (2.76)-' Tax on Any Non-Operating Income 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00=' Total Adjusted Taxes (204.12) (221.97) (242.52) (266.35) (285.10) (300.15) (317.00) (330.87) (351.59)Plus: Change in Deferred TaxesNet Deferred Tax Liability 14.90 46.40 100.40 77.81 86.74 96.69 107.78 120.14 133.92='Net Change in Deferred Tax Liabilities (116.80) 31.50 54.00 (22.59) 8.93 9.95 11.09 12.36 13.78NOPLAT = 209.92 382.13 437.74 395.53 457.30 480.58 506.93 530.60 564.07

INVESTED CAPITAL CALCULATIONOperating Current Assests:Normal Cash 101.10 111.70 123.30 136.07 150.36 162.70 175.39 188.55 196.47+' Accounts Receivable 466.00 568.50 653.77 655.90 724.77 784.28 845.45 908.86 947.03+'Inventory 23.07 26.25 27.74 30.89 34.13 36.93 39.81 42.80 44.60+'Prepaid Expenses 50.11 64.19 78.53 114.76 126.81 137.22 147.93 159.02 165.70+' Other Current Operating Assets 7.36 7.92 34.27 36.69 40.55 43.88 47.30 50.85 52.98Total Operating Current Assets 647.64 778.56 917.61 974.32 1,076.62 1,165.01 1,255.88 1,350.08 1,406.78Less: Non-Interest Bearing Current Liabilities:Accounts Payable 266.70 305.50 325.80 365.04 403.37 436.49 470.53 505.82 527.07Accrued Expenses 135.30 154.30 195.20 170.09 187.95 203.38 219.24 235.68 245.58Income taxes payable 0.75 2.49 0.00 0.00 0.00 0.00 0.00 0.00 0.00Total Non-Interest Bearing Current Liabilities 402.75 462.29 521.00 535.13 591.32 639.86 689.77 741.51 772.65Net Working Capital 244.89 316.27 396.61 439.19 485.31 525.15 566.11 608.57 634.13Plus: Net PP&E 1,885.00 2,112.00 2,483.00 2,785.07 3,105.53 3,427.93 3,745.77 4,051.89 4,311.02Gross PP&E 2,905.00 3,260.00 3,720.00 4,359.53 5,066.21 5,830.91 6,655.25 7,541.42 8,464.81-'Accumulated Depreciation 1,019.20 1,147.60 1,237.20 1,574.46 1,960.68 2,402.97 2,909.48 3,489.53 4,153.79Net PPE 1,885.80 2,112.40 2,482.80 2,785.07 3,105.53 3,427.93 3,745.77 4,051.89 4,311.02Plus: Net Other Operating AssestsCapitalized PV of Operating Leases 14.64 15.18 18.97 21.28 23.73 26.20 28.62 30.96 32.94Net Other operating Assets 14.64 15.18 18.97 21.28 23.73 26.20 28.62 30.96 32.94INVESTED CAPITAL 2,145.33 2,443.85 2,898.38 3,245.55 3,614.57 3,979.28 4,340.50 4,691.42 4,978.09

ROIC CALCULATIONNOPLAT 209.92 382.13 437.74 395.53 457.30 480.58 506.93 530.60 564.07Beginning Invested Capital 1,941.62 2,145.33 2,443.85 2,898.38 3,245.55 3,614.57 3,979.28 4,340.50 4,691.42ROIC 10.812% 17.812% 17.912% 13.647% 14.090% 13.296% 12.739% 12.224% 12.023%

FCF CalculationNOPLAT 209.92 382.13 437.74 395.53 457.30 480.58 506.93 530.60 564.07Change in Invested Captial 203.71 298.51 454.54 347.16 369.02 364.71 361.23 350.92 286.67FCF 6.21 83.62 (16.80) 48.37 88.28 115.87 145.70 179.68 277.40

EP CALCULATIONBeginning Invested Capital 1,941.62 2,145.33 2,443.85 2,898.38 3,245.55 3,614.57 3,979.28 4,340.50 4,691.42ROIC 10.81% 17.81% 17.91% 13.65% 14.09% 13.30% 12.74% 12.22% 12.02%WACC 6.48% 6.48% 6.48% 6.48% 6.48% 6.48% 6.48% 6.48% 6.48%EP 84.20 243.21 279.50 207.85 247.14 246.54 249.26 249.54 260.29


Weighted Average Cost of Capital (WACC) Estimation

Beta 0.935

Risk Premium 4.62%

Risk Free Rate 2.522%

Cost of Equity 6.98%

Pre-Tax Cost of Debt (2024) 3.04%

Tax Rate 39.42%

After-Tax Cost of Debt 1.84%

Cost of Preferred 1.00%

DebtRevolving Debt 183.00

Short term Debt 250.00

Long Term Debt 683.50

PV of Operating Leases 25.02

Total Debt 1,141.52

EquityStock Shares 116.6

Price Per Share $90.18

Market Cap 10514.99

MV of the Company 11,656.51

MV Weight of Debt 9.79%

MV Weight of Equity 90.21%

MV Weight of Prefered 0.00%

WACC 6.48%


Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs:

CV Growth 4.20% Current Date

CV ROIC 12.02% 2% of sales 4/17/2015

WACC 6.48% "normal cash" 123.3


Fiscal Years Ending Dec. 31 2014 2015E 2016E 2017E 2018E 2019E 2020E 2021E

FCF 48.37 88.28 115.87 145.70 179.68 277.40

DCF Model

WACC 6.48%

CF to Discount 48.37 88.28 115.87 145.70 179.68 16,131.95

NOPLAT 564.07

Periods to Discount 1 2 3 4 5 5

PV (CF) 45.42 77.87 95.99 113.37 131.30 11,788.15

Value Of Operating Assets 12,252.09

Plus: Excess Cash 186.11

Less: Revolving Debt 183.00

Less: Short‐term debt 250.00

Less: Long‐term debt 683.50

Less: PV of Operating Leases 25.02

Less: Underfunded Pension 0.00

Less: ESOP 252.87

Value of Equity 10,671.59

Number of Shares Outstanding 116.60

Intrinsic Value of Stock 91.523

Fraction of Fiscal Year Elapsed 0.29

Adjusted Stock Price 93.08

EP Model

WACC 6.48%

EP to discount 207.85 247.14 246.54 249.26 249.54 11,440.53

Periods to discount 1.00 2.00 3.00 4.00 5.00 5.00

Beginning Invested Capital 2,898.38

PV (CF) 195.21 218.00 204.24 193.94 182.35 8,359.97

Value of Operating Assets 12,252.09

Plus: Excess Cash 186.11

Less: Revolving Debt 183.00

Less: Short‐term Debt 250.00

Less: Long‐term Debt 683.50

Less: PV operating leases 25.02

Less: Underfunded Pension 0.00

Less: ESOP 252.87

Value of Equity 10,671.59

Number of Shares Outstanding 116.60

Intrinsic Value of Stock 91.52


Adjusted Stock Price 93.08

For Discounting:

Number of Periods 2 3 4 5 6 7 8

Today 5/3/2015

Next FYE 12/31/2011

Last FYE 12/31/2010

Days in FY 365

Days to FYE 1,584

Elapsed Fraction 4.340

Beg. Fiscal Year

1/1/2015


Dividend Discount Model (DDM) or Fundamental P/E Valuation Model

Current Date

4/5/2015

Fiscal Years Ending Dec. 31 2014 2015E 2016E 2017E 2018E 2019E 2020E 2021E

EPS 3.16$ 3.30$ 3.56$ 3.79$ 4.01$ 4.19$ 4.49$

Key Assumptions CV growth 4.20%

CV ROE 12.29%


Future Cash Flows P/E Multiple (CV Year) 23.68 EPS (CV Year) 4.49

Future Stock Price 106.23

Dividends Per Share 0.80 0.82 0.89 0.95 1.00 1.05 1.12

Future Cash Flows

period 0 1 2 3 4 5 5

Discounted Cash Flows 0.80 0.77 0.78 0.77 0.76 0.75 75.81

Intrinsic Value 79.64$


Adjusted Stock Price $80.84

1/1/2015

Beg. Fiscal Year

J.B. Hunt Transport Services, Inc.Relative Valuation Models

EPS EPS Est. 5yr Profit OperatingTicker Company Price 2015E 2016E P/E 15 P/E 16 EPS gr. PEG 15 PEG 16 Margin Margin

LSTR Landstar System Inc. $64.09 $3.45 $3.88 18.6 16.5 17.32 1.07 0.95 4.36% 6.98%

SWFT Swift Transportation Co $25.50 $1.72 $1.97 14.8 12.9 17.11 0.87 0.76 3.75% 8.02%

ODFL Old Dominion Freight Line Inc. $72.78 $3.65 $4.25 19.9 17.1 20.84 0.96 0.82 9.60% 15.80%

KNX Knight Transportation Inc. $31.69 $1.44 $1.65 22.0 19.2 18.25 1.21 1.05 9.33% 13.27%

WERN Werner Enterprises Inc. $30.50 $1.61 $1.81 18.9 16.9 14.0 1.36 1.21 4.61% 6.58%

HTLD Heartland Express Inc $22.90 $1.07 $1.22 21.4 18.8 14.3 1.49 1.31 9.74% 11.28%

CNW Con‐Way Inc. $42.04 $2.78 $3.29 15.1 12.8 21.0 0.72 0.61 2.36% 4.45%FWRD Forward Air Corp $50.75 $2.42 $2.83 21.0 17.9 13.9 1.51 1.29 7.83% 12.41%

Average 19.0 16.5 1.1 1.0

JBHT J.B. Hunt Transport Services, Inc. $90.18 $3.30 $3.56 27.3 25.4 6.02 4.5 4.2 6.08% 10.24%

Implied Value:

Relative P/E (EPS15) $ 62.62

Relative P/E (EPS16) 58.74$

PEG Ratio (EPS15) 22.78$

PEG Ratio (EPS16) 21.39$

Beta93.08 0.185 0.435 0.685 0.935 1.185 1.435 1.685 1.935

1.77% 565.93 287.57 188.22 137.25 106.25 85.42 70.48 59.23 93.08 6.23% 6.48% 6.73% 6.98% 7.23% 7.48% 7.73% 7.98%2.02% 515.39 255.33 165.03 119.20 91.50 72.97 59.70 49.75 5.73% 148.41 148.52 148.62 148.72 148.82 148.92 149.02 149.132.27% 472.85 229.18 146.46 104.85 79.82 63.13 51.21 42.29 5.98% 124.59 124.68 124.76 124.85 124.93 125.02 125.10 125.19

Risk Free Rate 2.52% 436.55 207.54 131.26 93.16 70.35 55.17 44.36 36.28 6.23% 106.65 106.72 106.79 106.87 106.94 107.01 107.08 107.162.77% 405.22 189.35 118.59 83.47 62.51 48.60 38.71 31.33 WACC 6.48% 92.65 92.71 92.77 92.84 92.90 92.96 93.03 93.093.02% 377.90 173.83 107.86 75.30 55.92 43.09 33.98 27.19 6.73% 81.42 81.48 81.54 81.59 81.65 81.70 81.76 81.813.27% 353.87 160.45 98.67 68.32 50.30 38.40 29.96 23.67 6.98% 72.23 72.28 72.33 72.38 72.43 72.48 72.52 72.573.52% 332.56 148.78 90.70 62.28 45.46 34.36 26.50 20.65 7.23% 64.56 64.60 64.64 64.69 64.73 64.78 64.82 64.87

7.48% 58.06 58.10 58.14 58.18 58.22 58.26 58.30 58.34

Equity Risk Premium Vs Marginal Tax Rate

Cost of Debt93.08 2.29% 2.54% 2.79% 3.04% 3.29% 3.54% 3.79% 4.04% 93.08 38.67% 38.92% 39.17% 39.42% 39.67% 39.92% 40.17% 40.42%

3.45% 74.80 74.35 73.91 73.48 73.05 72.62 72.20 71.78 3.87% 141.37 141.39 141.41 141.42 141.44 141.46 141.48 141.49CV Growth 3.70% 80.36 79.85 79.34 78.84 78.34 77.85 77.36 76.88 4.12% 121.29 121.30 121.31 121.31 121.32 121.33 121.33 121.34

3.95% 87.04 86.44 85.84 85.26 84.67 84.10 83.53 82.97 Equity Risk Premium 4.37% 105.64 105.64 105.64 105.64 105.64 105.64 105.64 105.644.20% 95.22 94.50 93.79 93.08 92.39 91.70 91.03 90.36 4.62% 93.09 93.09 93.08 93.08 93.08 93.07 93.07 93.074.45% 105.47 104.58 103.71 102.85 102.00 101.16 100.34 99.52 4.87% 82.81 82.81 82.80 82.79 82.79 82.78 82.77 82.774.70% 118.68 117.55 116.45 115.36 114.29 113.24 112.20 111.18 5.12% 74.24 74.23 74.22 74.22 74.21 74.20 74.19 74.184.95% 136.34 134.86 133.40 131.97 130.57 129.20 127.85 126.52 5.37% 66.98 66.97 66.96 66.96 66.95 66.94 66.93 66.925.20% 161.19 159.11 157.08 155.10 153.16 151.27 149.42 147.61 5.62% 60.76 60.75 60.74 60.73 60.72 60.71 60.70 60.69

WACC Vs. Cost of Equity

Cost of Equity

CV Growth Vs. Cost of DebtMarginal Tax Rate

Risk Free Rate Vs Beta


Key Management Ratios

Fiscal Years Ending Dec. 31 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E 2021E

Liquidity RatiosCurrent Ratio Current Assets / Current Liabilities 1.10 0.95 1.14 1.50 1.89 2.26 2.53 2.88 3.33

Quick Ratio (Current Assets - Inventories) / Current Liabilities 1.06 0.92 1.11 1.46 1.85 2.21 2.48 2.83 3.29

Net Working Capital Current Assests - Current Liabilities 51.70$ (32.10)$ 109.00$ 391.72$ 691.31$ 1,035.11$ 1,435.35$ 1,859.65$ 2,382.92$

Activity or Asset‐Management RatiosTotal Asset Turnover Total Revenue / Total Assets 205.07% 198.12% 181.48% 170.41% 163.26% 152.83% 142.32% 135.69% 126.51%

Receivables Turnover Net Income / Accounts Receivable 66.61% 60.23% 57.33% 58.82% 56.94% 55.64% 54.41% 52.66% 53.67%

Fixed Asset Turnover Total Revenue / Net PPE 268.17% 264.44% 248.29% 244.28% 242.08% 237.32% 234.12% 232.67% 227.86%

Financial Leverage RatiosDebt to Equity (Short Term + Long Term Debt) / Total Equity 86.54% 69.97% 77.50% 60.89% 47.71% 41.87% 40.07% 37.44% 35.64%

Debt ratio (Short Term + Long Term Debt) / Total Assets 27.80% 25.13% 27.48% 25.01% 21.78% 20.37% 20.20% 19.45% 18.98%

Equity ratio Total Equity / Total Assets 32.13% 35.92% 35.46% 41.07% 45.64% 48.65% 50.41% 51.96% 53.26%

Capitalization ratio (Total Debt) / (Total Debt + Total Equity) 46.39% 41.16% 43.66% 37.84% 32.30% 29.51% 28.61% 27.24% 26.27%

Profitability RatiosReturn on Assets Net Income / Total Assets 12.59% 12.15% 11.03% 9.66% 8.96% 8.20% 7.47% 6.89% 6.55%

Return on Equity Net Income / Total Equity 39.20% 33.82% 31.12% 23.53% 19.64% 16.85% 14.81% 13.26% 12.29%

Net Profit Margin Net Income / Total Revenue 6.14% 6.13% 6.08% 5.67% 5.49% 5.36% 5.25% 5.08% 5.17%

Operating Margin Operating Income / Revenue 10.49% 10.24% 10.15% 10.05% 9.74% 9.46% 9.26% 8.99% 9.17%

Payout Policy RatiosReturn on Assets Dividends / Net Income 26.88% 15.42% 24.97% 24.67% 24.71% 24.89% 24.76% 24.66% 24.68%

Present Value of Operating Lease Obligations (2014) Present Value of Operating Lease Obligations (2013) Present Value of Operating Lease Obligations (2012)

Operating Operating Operating

Fiscal Years Ending Dec. 31 Leases Fiscal Years Ending Leases Fiscal Years Ending Leases

2015 10.5 2014 10.6 2013 7.8

2016 8.2 2015 8.7 2014 9.5

2017 5.4 2016 6.5 2015 3.5

2018 2.4 2017 4.2 2016 0.3

2019 0.05 2018 1.5 2017 0

Thereafter 0 Thereafter 0 Thereafter 0

Total Minimum Payments 26.55 Total Minimum Payments 31.5 Total Minimum Payments 21.1

Less: Interest 2 Less: Interest 2 Less: Interest #DIV/0!

PV of Minimum Payments 25.0 PV of Minimum Payments 29.4 PV of Minimum Payments #DIV/0!

Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases

Pre‐Tax Cost of Debt 3.04% Pre‐Tax Cost of Debt 3.04% Pre‐Tax Cost of Debt 3.04%

Number Years Implied by Year 6 Payment 1.0 Number Years Implied by Year 6 Payment 1.0 Number Years Implied by Year 6 Payment #DIV/0!

Lease PV Lease Lease PV Lease Lease PV Lease

Year Commitment Payment Year Commitment Payment Year Commitment Payment

1 10.5 10.2 1 10.6 10.3 1 7.8 7.6

2 8.2 7.7 2 8.7 8.2 2 9.5 8.9

3 5.4 4.9 3 6.5 5.9 3 3.5 3.2

4 2.4 2.1 4 4.2 3.7 4 0.3 0.3

5 0.05 0.0 5 1.5 1.3 5 0 0.0

6 & beyond 0 0.0 6 & beyond 0 0.0 6 & beyond 0 #DIV/0!

PV of Minimum Payments 25.0 PV of Minimum Payments 29.4 PV of Minimum Payments #DIV/0!

Present Value of Operating Lease Obligations (2011) Present Value of Operating Lease Obligations (2010) Present Value of Operating Lease Obligations (2009)

Operating Operating Operating

Fiscal Years Ending Leases Fiscal Years Ending Leases Fiscal Years Ending Leases

2012 8 2011 7.3 2010 6.39

2013 5 2012 4.9 2011 4.51

2014 3.2 2013 2 2012 2.59

2015 2.3 2014 1 2013 0.99

2016 1.3 2015 0.4 2014 0.44

Thereafter 0.5 Thereafter 0.5 Thereafter 0.69

Total Minimum Payments 20.3 Total Minimum Payments 16.1 Total Minimum Payments 15.61

Less: Interest 1 Less: Interest 1 Less: Interest 1

PV of Minimum Payments 19 PV of Minimum Payments 15 PV of Minimum Payments 15

Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases

Pre‐Tax Cost of Debt 3.04% Pre‐Tax Cost of Debt 3.04% Pre‐Tax Cost of Debt 3.04%

Number Years Implied by Year 6 Payment 1.0 Number Years Implied by Year 6 Payment 1.3 Number Years Implied by Year 6 Payment 1.6

Lease PV Lease Lease PV Lease Lease PV Lease

Year Commitment Payment Year Commitment Payment Year Commitment Payment

1 8 7.8 1 7.3 7.1 1 6.39 6.2

2 5 4.7 2 4.9 4.6 2 4.51 4.2

3 3.2 2.9 3 2 1.8 3 2.59 2.4

4 2.3 2.0 4 1 0.9 4 0.99 0.9

5 1.3 1.1 5 0.4 0.3 5 0.44 0.4

6 & beyond 0.5 0.4 6 & beyond 0.4 0.4 6 & beyond 0.44 0.6

PV of Minimum Payments 19.0 PV of Minimum Payments 15.2 PV of Minimum Payments 14.6

Present Value of Operating Lease Obligations (2008) Present Value of Operating Lease Obligations (2007) Present Value of Operating Lease Obligations (2006) Present Value of Operating Lease Obligations (2005)

Operating Operating Operating Operating

Fiscal Years Ending Leases Fiscal Years Ending Leases Fiscal Years Ending Leases Fiscal Years Ending Leases

2009 0 2008 4.28 2007 31.46 2006 57.95

2010 2.08 2009 1.58 2008 12.3 2007 36.35

2011 1.07 2010 0.75 2009 1.14 2008 14.02

2012 0.87 2011 0.57 2010 0.79 2009 1.11

2013 0.24 2012 0.12 2011 0.7 2010 0.77

Thereafter 0.07 Thereafter 0 Thereafter 1.2 Thereafter 1.88

Total Minimum Payments 4.33 Total Minimum Payments 7.3 Total Minimum Payments 47.59 Total Minimum Payments 112.08

Less: Interest 0 Less: Interest 0 Less: Interest 2 Less: Interest 6

PV of Minimum Payments 4 PV of Minimum Payments 7 PV of Minimum Payments 45 PV of Minimum Payments 106

Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases

Pre‐Tax Cost of Debt 3.04% Pre‐Tax Cost of Debt 3.04% Pre‐Tax Cost of Debt 3.04% Pre‐Tax Cost of Debt 3.04%

Number Years Implied by Year 6 Payment 1.0 Number Years Implied by Year 6 Payment 1.0 Number Years Implied by Year 6 Payment 1.7 Number Years Implied by Year 6 Payment 2.4

Lease PV Lease Lease PV Lease Lease PV Lease Lease PV Lease

Year Commitment Payment Year Commitment Payment Year Commitment Payment Year Commitment Payment

1 0 0.0 1 4.28 4.2 1 31.46 30.5 1 57.95 56.2

2 2.08 2.0 2 1.58 1.5 2 12.3 11.6 2 36.35 34.2

3 1.07 1.0 3 0.75 0.7 3 1.14 1.0 3 14.02 12.8

4 0.87 0.8 4 0.57 0.5 4 0.79 0.7 4 1.11 1.0

5 0.24 0.2 5 0.12 0.1 5 0.7 0.6 5 0.77 0.7

6 & beyond 0.07 0.1 6 & beyond 0 0.0 6 & beyond 0.7 1.0 6 & beyond 0.77 1.5

PV of Minimum Payments 4.0 PV of Minimum Payments 6.9 PV of Minimum Payments 45.5 PV of Minimum Payments 106.5

Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding

Number of Options Outstanding (shares): 98,000

Average Time to Maturity (years): 2.58

Expected Annual Number of Options Exercised: 37,984

Current Average Strike Price: 20.40$

Cost of Equity: 6.98%

Current Stock Price: $90.18

2015E 2016E 2017E 2018E 2019E 2020E 2021E

Increase in Shares Outstanding: 98,000 440,000 1,031,000 1,899,000

Average Strike Price: 20.40$ 19.08$ 16.63$ 14.65$

Increase in Common Stock Account: 2.00 8.40 17.15 27.82

Change in Treasury Stock 110,000,000 110,000,000 110,000,000 110,000,000 110,000,000 110,000,000

Expected Price of Repurchased Shares: 90.18$ 96.47$ 103.21$ 110.41$ 118.12$ 126.36$

Number of Shares Repurchased: 1,219,783 1,140,197 1,065,804 996,265 931,262 870,501

Shares Outstanding (beginning of the year) 116,600,000 115,478,217 114,778,020 114,743,217 113,746,952 112,815,690

Plus: Shares Issued Through ESOP 98,000 440,000 1,031,000 0 0 0

Less: Shares Repurchased in Treasury 1,219,783 1,140,197 1,065,804 996,265 931,262 870,501

Shares Outstanding (end of the year) 115.48 114.78 114.74 113.75 112.82 111.95

VALUATION OF OPTIONS GRANTED IN ESOP

Ticker Symbol JBHT

Current Stock Price $90.18

Risk Free Rate 2.52%

Current Dividend Yield 1.00%

Annualized St. Dev. of Stock Returns 38.80%

Average Average B‐S Value

Range of Number Exercise Remaining Option of Options

Outstanding Options of Shares Price Life (yrs) Price Granted

Range 1 1,899,000 14.65 3.01 73.95$ 140,422,918$

Range 2 1,031,000 16.63 2.35 72.42$ 74,669,016$

Range 3 440,000 19.08 1.67 70.40$ 30,975,039$

Range 4 98,000 20.40 0.86 69.45$ 6,805,661$

Total 3,468,000 15.96$ 2.58 75.24$ 253$

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