J.B. Hunt is constant its remarkable run of getting an investment-grade corporate debt rating that hasn’t budged in almost 10 years, following a report issued by Moody’s Investors Service.
Moody’s this week issued an affirmation of its J.B. Hunt (NASDAQ: JBHT) rating at Baa1. That rating has been in place since 2014 and is taken into account reminiscent of the BBB+ rating on J.B. Hunt that has also been in place since 2014 at S&P Global Rankings (NYSE: SPGI). At each agencies, their respective rankings have neither risen nor fallen during that point period.
The Baa1/BBB+ rating is three notches into investment-grade territory along the corporate scale. Logistics firms are generally not large participants in publicly traded debt markets, so there aren’t quite a lot of comparison points for the J.B. Hunt rating. But for 3PLs and trucking firms that do have rated debt, the tendency is to have rankings which can be considered noninvestment grade. (Ryder (NYSE: R) and C.H. Robinson (NASDAQ: CHRW) are exceptions.)
As is likely to be expected in a debt rating affirmation slightly than an upward or downward change, the Moody’s (NYSE: MCO) commentary on J.B. Hunt held few surprises.
The rankings agency said J.B. Hunt’s intermodal franchise arrangements with most major North American railroads “positions it to profit from growth in intermodal freight.” However it added that it expects “intermodal growth to slow within the near term.”
Rankings agencies don’t offer recommendations on an organization’s stock. Relatively, they’re focused solely on the power of a rated company to service its debt.
One key metric is an organization’s adjusted debt-to-EBITDA ratio. Moody’s said it expects that number at J.B. Hunt to be 0.9x on the close of this 12 months. Nonetheless, it also said that number might grow barely and that it could stay “relatively stable to around 1.0 times over the following 12-18 months.”
Considered one of the explanations for that change within the debt coverage is that Moody’s expects J.B. Hunt to extend its capital spending in 2023. J.B. Hunt expects negative free money flow in 2023 “as the corporate ramps up capital spending what is anticipated to be the next than normal investment period over the following 12-18 months,” the report said.
On the corporate’s recent first-quarter conference call, CFO John Kuhlow said J.B. Hunt anticipated capital expenditures of $1.5 billion to $2 billion this 12 months. In contrast, capex in all of 2022 was about $1.4 billion and $877 million a 12 months earlier.
But even with that increase, Moody’s said J.B. Hunt will “have sound liquidity over the following 12 to 18 months.” It cited a $1 billion revolving credit facility that had $703 million available as of the close of the primary quarter. The Hunt money stockpile of $52 million at the tip of the primary quarter was described as “moderate.” It also has a $500 million delayed draw term loan that will be utilized through June.
Moody’s said it expects Hunt’s dividend payments will exceed operating money flow this 12 months. Its current annual dividend of $1.68 per share has a yield barely lower than 1% as of the closing price of $176.34 per share on Thursday.
J.B. Hunt stock is up slightly below 4% within the last 12 months, based on Barchart.
Moody’s kept its “stable” outlook for J.B. Hunt. The stable outlook signifies that neither a downgrade or upgrade is probably going within the near future.
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