Why UPS Will Outperform JBHT in the Next Three Years
UPS vs. JBHT
Trefis Team
Contributor
Great Speculations
Contributor Group
This content represents the views of Forbes’ contributing authors.
September 12, 2024, 08:00 AM ET
Given its better outlook, we believe UPS stock (NYSE: UPS) is a better choice than its smaller peer—J.B. Hunt Transport Services stock (NASDAQ: JBHT). UPS has an expected P/E ratio of 17x, while JBHT’s expected P/E ratio stands at 30x. We believe this valuation gap will narrow and favor UPS due to its higher profitability. There is more to compare, and in the following sections, we discuss why we think UPS will outperform JBHT over the next three years. We have compared several factors such as historical revenue growth, stock returns, and valuations.
1. JBHT Stock Outperformed UPS
The price of UPS stock has fallen from $145 at the beginning of January 2021 to its current level of $130, a decline of 10%, while JBHT stock rose from $130 to $170 during the same period, an increase of 30%. In comparison, the S&P 500 index has risen by 45% over this approximate three-year span.
However, these stock changes are far from consistent. UPS stock returned 30% in 2021, -15% in 2022, and -6% in 2023, while JBHT’s returns were 51%, -14%, and 16%, respectively. In comparison, the S&P 500 index returned 27% in 2021, -19% in 2022, and 24% in 2023, indicating that both UPS and JBHT underperformed the S&P 500 index in 2023.
In fact, over recent years, it has been difficult for individual stocks or heavyweights in the industrial sector such as FDX, UNP, and CAT, even large-cap stars like GOOG, TSLA, and MSFT, to consistently outperform the S&P 500 index. In contrast, Trefis’ high-quality investment portfolio, which includes 30 stocks, has exceeded the S&P 500 index every year during the same period. Why is this? As a whole, the stocks in the high-quality investment portfolio provide higher returns with lower risk and less volatility, as reflected in their performance metrics.
2. J.B. Hunt’s Revenue Growth Slightly Outperformed
UPS’ revenue grew from $84.6 billion in 2020 to $91 billion in 2023, with an annual growth rate of 2.9%. In comparison, J.B. Hunt’s sales increased from $9.6 billion to $12.8 billion over the same period, with an annual growth rate of 11.5%. Looking at trailing twelve months (TTM), UPS’ revenue declined by 6.9%, while J.B. Hunt’s income decreased by 10.9%. Our UPS Revenue Comparison and J.B. Hunt Transport Services Revenue Comparison dashboard provides more insights into the company’s sales.
UPS’ revenue growth was primarily driven by e-commerce growth and better price realization. However, due to weakened consumer confidence, recent sales growth has slowed down. The daily volume of domestic packages in the US decreased 3.1% in 2022, 8.5% in 2023, and 1.3% over the six months ending June 2024. On the other hand, price trends have been strong, with average revenue per piece for domestic packages increasing by 9.5% in 2022, 2.4% in 2023, but declining by 1.5% this year so far. Even international package volumes declined by 8% over the past three years. Looking ahead, UPS expects its revenue to be around $93 billion for 2024, a low single-digit decline year-over-year. Growth rates are expected to recover to mid-single digits starting next year with a rebound in parcel deliveries.
J.B. Hunt’s revenue growth was driven by better price realization. However, similar to UPS, J.B. Hunt has also faced pressure on volume and average revenue per load recently. Its total sales declined 13% in 2023 and 8% so far this year. The company’s fuel surcharges are also declining. This trend is expected to continue in the short term with sales projected to decline by mid-single digits for the year. However, demand could rebound next year.
3. UPS Is More Profitable
UPS’ operating margin slightly increased from 9.1% in 2020 to 10% in 2023, while J.B. Hunt’s operating margin rose from 7.4% to 7.7% over the same period. Due to increased operational expenses partly due to the impact of a labor agreement signed with the Teamsters union last August, UPS’ recent operating margins have declined. Over the past 12 months, UPS’ operating margin was 8.2%, slightly higher than J.B. Hunt’s 6.8%.
4. From a Financial Risk Perspective, UPS and JBHT Are Similar
From a financial risk perspective, the two stocks seem comparable. Although UPS has a debt-to-equity ratio of 24%, higher than J.B. Hunt’s 8%, UPS’ cash-to-assets ratio is 9%, significantly higher than the latter’s 1%. This means that while J.B. Hunt has a better debt situation, UPS has more cash buffer.
5. Overall
We found that J.B. Hunt had better revenue growth and a better debt situation. On the other hand, UPS is more profitable with greater cash buffers. Looking ahead, we believe UPS to be the better choice between the two. We estimate UPS’ valuation at $151 per share, which represents about 15% upside from its current level of $130. At current levels, UPS has an expected P/E ratio of 17x based on a full-year 2024 EPS expectation and adjusted earnings of $7.43 per share. The 17x multiple is below the average three-year historical P/E ratio of 19x.
In comparison, JBHT’s current expected P/E ratio stands at 30x based on a full-year 2024 EPS expectation of $5.68. This 30x multiple significantly exceeds its average three-year historical P/E ratio of 22x. This suggests that UPS stock has room to grow, while JBHT stock appears fully valued in our view.
While UPS may outperform JBHT over the next three years, it is also helpful to look at how UPS’ peers perform on key metrics. You can find other valuable company comparisons across industries as well.
Source: Forbes
