Calculating The Intrinsic Value Of J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT)

J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT) is a leading provider of surface transportation, delivery, and logistics services in the United States. With a market capitalization of over $17 billion, the company operates through five segments: Intermodal (JBI), Dedicated Contract Services (DCS), Integrated Capacity Solutions (ICS), Final Mile Services (FMS), and Truckload (JBT). To determine if JBHT is fairly valued, overvalued, or undervalued, we can use the Discounted Cash Flow (DCF) model, which estimates the intrinsic value of a company by discounting its future free cash flows to their present value.



The DCF model relies on several key assumptions, including the growth rate of future cash flows and the discount rate, which reflects the risk associated with those cash flows. For JBHT, we'll use the following assumptions:

1. Growth Rate: We'll use the average growth rate of JBHT's free cash flow (FCF) over the past five years, which is approximately 11.36%.
2. Discount Rate: We'll use the weighted average cost of capital (WACC) as the discount rate, which is estimated to be around 7.0% for JBHT.

Using these assumptions, we can calculate the intrinsic value of JBHT as follows:

1. Estimate Future Cash Flows: We'll use the historical growth rate to estimate JBHT's future cash flows for the next ten years. Assuming an average FCF growth rate of 11.36%, we can estimate the following cash flows:
* 2024: $738.2 million
* 2025: $578.2 million
* 2026: $711.0 million
* 2027: $917.0 million
* 2028: $1.08 billion
* 2029: $1.21 billion
* 2030: $1.31 billion
* 2031: $1.40 billion
* 2032: $1.47 billion
* 2033: $1.54 billion
2. Calculate Present Value of Cash Flows: We'll discount each future cash flow to its present value using the discount rate of 7.0%:
* 2024: $690 million
* 2025: $505 million
* 2026: $580 million
* 2027: $699 million
* 2028: $772 million
* 2029: $803 million
* 2030: $815 million
* 2031: $813 million
* 2032: $801 million
* 2033: $781 million
3. Calculate Terminal Value: After the initial ten-year period, we'll assume a stable growth rate for JBHT's cash flows, known as the terminal value. Using the Gordon Growth formula with a future annual growth rate equal to the 5-year average of the 10-year government bond yield (2.3%), we can estimate the terminal value:
* Terminal Value = $1.54 billion × (1 + 2.3%) ÷ (7.0% – 2.3%) = $33 billion
4. Calculate Present Value of Terminal Value: We'll discount the terminal value back to its present value using the same discount rate of 7.0%:
* Present Value of Terminal Value = $33 billion ÷ (1 + 7.0%)10 = $17 billion
5. Calculate Intrinsic Value: Finally, we'll sum the present values of the future cash flows and the present value of the terminal value to estimate JBHT's intrinsic value:
* Intrinsic Value = $7.3 billion + $17 billion = $24.3 billion

Based on our DCF analysis, JBHT's intrinsic value is estimated to be $24.3 billion, which is approximately 13% higher than its current market capitalization of $17.3 billion. This suggests that JBHT may be undervalued at its current share price of $172.45.



In conclusion, our DCF analysis indicates that J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT) may be undervalued at its current share price. However, it's essential to consider other valuation methods and factors, such as the company's competitive advantages, risks, and market conditions, to make a well-informed investment decision.