J.B. Hunt is continuing its remarkable run of having 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 considered equivalent to the BBB+ rating on J.B. Hunt that has also been in place since 2014 at S&P Global Ratings (NYSE: SPGI). At both agencies, their respective ratings have neither risen nor fallen during that time period.
The Baa1/BBB+ rating is three notches into investment-grade territory along the company scale. Logistics companies are generally not large participants in publicly traded debt markets, so there are not a lot of comparison points for the J.B. Hunt rating. But for 3PLs and trucking companies that do have rated debt, the tendency is to have ratings that are considered noninvestment grade. (Ryder (NYSE: R) and C.H. Robinson (NASDAQ: CHRW) are exceptions.)
As might be expected in a debt rating affirmation rather than an upward or downward change, the Moody’s (NYSE: MCO) commentary on J.B. Hunt held few surprises.
The ratings agency said J.B. Hunt’s intermodal franchise arrangements with most major North American railroads “positions it to benefit from growth in intermodal freight.” But it added that it expects “intermodal growth to slow in the near term.”
Ratings agencies do not offer recommendations on a company’s stock. Rather, they are focused solely on the ability of a rated company to service its debt.
One key metric is a company’s adjusted debt-to-EBITDA ratio. Moody’s said it expects that number at J.B. Hunt to be 0.9x at the close of this year. However, it also said that number might grow slightly and that it would stay “relatively stable to around 1.0 times over the next 12-18 months.”
One of the reasons for that change in the debt coverage is that Moody’s expects J.B. Hunt to increase its capital spending in 2023. J.B. Hunt expects negative free cash flow in 2023 “as the company ramps up capital spending what is expected to be a higher than normal investment period over the next 12-18 months,” the report said.
On the company’s recent first-quarter conference call, CFO John Kuhlow said J.B. Hunt anticipated capital expenditures of $1.5 billion to $2 billion this year. By contrast, capex in all of 2022 was about $1.4 billion and $877 million a year earlier.
But even with that increase, Moody’s said J.B. Hunt will “have sound liquidity over the next 12 to 18 months.” It cited a $1 billion revolving credit facility that had $703 million available as of the close of the first quarter. The Hunt cash stockpile of $52 million at the end of the first quarter was described as “moderate.” It also has a $500 million delayed draw term loan that can be utilized through June.
Moody’s said it expects Hunt’s dividend payments will exceed operating cash flow this year. Its current annual dividend of $1.68 per share has a yield slightly less than 1% as of the closing price of $176.34 per share on Thursday.
J.B. Hunt stock is up just under 4% in the last 12 months, according to Barchart.
Moody’s kept its “stable” outlook for J.B. Hunt. The stable outlook means that neither a downgrade or upgrade is likely in the near future.
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