The Bull Thesis For Truckers: JB Hunt, Heartland Express, USA Truck Shares Upgraded To Buy

The trucking industry may soon enjoy a major uptick in pricing. Despite strong stock performances among trucking stocks of late, Stifel analyst John Larkin saw enough evidence that trucking rate hikes are on the horizon to upgrade J B Hunt Transport Services Inc JBHT, Heartland Express, Inc. HTLD and USA Truck, Inc. USAK from Hold to Buy on Thursday.

After speaking with a large group of industry insiders, including carriers, logisticians, shippers, consultants, vendors and investors, Larkin is convinced that contract pricing will soon catch up to rising demand. (See Larkin's track record here.) 

“With an improved pricing outlook versus our previous, more conservative outlook, our thought process suggests that average price increases will materialize to the tune of 5-10 percent (and in some cases above the top of the range) during the next iteration of contract negotiations versus our previous estimates of 1.5-2.5 percent,” Larkin said.

According to Larkin, hurricanes Harvey and Irma added significant demand to an already hot market, and demand from the holiday shopping season will soon pick up as well.

“Due to the timing of the negotiations, we are modeling the price increases to be less visible in 2H17, begin to build through 2018, and become close to fully realized in 3Q18 at which point in time the pricing concessions will become more fully obvious.”

The three upgraded stocks are already up between 33 and 41 percent each in the past year, but Larkin says demand acceleration will pave the way for more upside.

Stifel has a $125 price target for J.B. Hunt, a $28 price target for Heartland Express and a $15 price target for USA Truck.

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