Pick UPS Stock Over J.B. Hunt?

Given its better prospects, we believe UPS stock (NYSE: UPS) is a better pick than its smaller peer — J.B. Hunt Transport Services stock (NASDAQ: JBHT). UPS trades at a lower valuation multiple of 17x forward expected earnings vs. 30x for JBHT. We think this gap in their valuation will narrow in favor of UPS, given its superior profitability. There is more to the comparison, and in the sections below, we discuss why we think UPS will outperform JBHT in the next three years. We compare a slew of factors, such as historical revenue growth, stock returns, and valuation.

1.  JBHT Stock Has Fared Better Than UPS

UPS stock has seen a decline of 10% from levels of $145 in early January 2021 to around $130 now, vs. an increase of about 30% for JBHT stock from $130 to $170 over this period. In comparison, the S&P 500 has risen 45% over this roughly three-year period.
However, the changes in these stocks have been far from consistent. Returns for UPS stock were 30% in 2021, -15% in 2022, and -6% in 2023, while that for JBHT were 51%, -14%, and 16%, respectively. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that UPS and JBHT underperformed the S&P in 2023.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Industrials sector including FDX, UNP, and CAT, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

2. J.B. Hunt’s Revenue Growth Is Slightly Better

UPS has seen its revenue rise at an average annual rate of 2.9% from $84.6 billion in 2020 to $91 billion in 2023. In comparison, J.B. Hunt’s sales have grown at an average rate of 11.5% from $9.6 billion to $12.8 billion over this period. Looking at the last twelve-month period, UPS’ sales declined 6.9%, while J.B. Hunt’s revenues are down 10.9%. Our UPS Revenue Comparison and J.B. Hunt Transport Services Revenue Comparison dashboards provide more insight into the companies’ sales.

The revenue growth for UPS was driven by e-commerce growth and better price realization. However, the sales growth has slowed lately due to a weakening consumer sentiment. UPS saw its U.S. domestic package average daily package volume fall by 3.1% in 2022, 8.5% in 2023, and it was down 1.3% for the six-month period ending June 2024. On the flip side, pricing trends were strong, with its U.S. domestic package average revenue per piece rising 9.5% in 2022, 2.4% in 2023, before seeing a decline this year, down 1.5% in the first half. Even for its international packages, the volume declined 8% over the last three years. Looking forward, UPS expects its 2024 revenue to be around $93 billion, reflecting a low single-digit decline y-o-y. The growth rate is expected to improve to mid-single-digits from next year, with an expected rebound in package deliveries.

J.B. Hunt’s revenue growth is being driven by better price realization. However, similar to UPS, J.B. Hunt is also facing pressure lately on the volume front as well as for its average revenue per load. Its total sales were down 13% in 2023 and 8% in the first half of this year. Fuel surcharges have also been trending lower for the company. This trend is expected to continue in the near term, with sales expected to decline in the mid-single-digits this year. However, the company will likely see a rebound in demand next year.

3. UPS Is More Profitable

UPS’ operating margin increased slightly from 9.1% in 2020 to 10% in 2023, while J.B. Hunt has seen its operating margin expand from 7.4% to 7.7% over the same period. UPS’ operating margin has been trending downward lately, due to higher operational expenses, partly due to the impact of the labor deal with the Teamsters Union that was ratified in August last year. Looking at the last twelve-month period, UPS’ operating margin of 8.2% fares slightly better than 6.8% for J.B. Hunt.

4. UPS and JBHT Seem Comparable From A Financial Risk Perspective

Looking at financial risk, both stocks seem comparable. While UPS’ 24% debt as a percentage of equity is higher than 8% for J.B. Hunt, its 9% cash as a percentage of assets is much higher than 1% for the latter. This implies that J.B. Hunt has a better debt position, but UPS has more cash cushion.

5. The Net of It All

We see J.B. Hunt has seen a better revenue growth and has a better debt position. On the other hand, UPS is more profitable and has more cash cushion. Now, looking at the prospects, we believe UPS is the better choice of the two. We estimate UPS’s valuation to be $151 per share, reflecting an upside of around over 15% from its current levels of $130. At its current levels, UPS is trading at 17x expected earnings of $7.43 on a per-share and adjusted basis for the full year 2024. The 17x figure is below the stock’s average P/E ratio of 19x seen over the last three years.

In contrast, JBHT stock, at its current levels of $170, trades at 30x expected earnings of $5.68 per share in 2024. The 30x figure is much higher than the stock’s average P/E ratio of 22x seen over the last three years. This implies that UPS stock has room to grow, while JBHT stock looks fully priced, in our view.

While UPS may outperform JBHT in the next three years, it is helpful to see how UPS’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 9/11/2024
[2] Cumulative total returns since the end of 2016

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