Krause Fund Research \ Spring 2015

J.B Hunt Transportation Services Industrials (NYSE: JBHT)

Recommendation: HOLD

Analysts Current Price $90.18 Brett Theriault Trent Good Target Price: $93.08 - $95.15 [email protected] [email protected]

Lucas McCarthy [email protected] JBHT Keep on Trucking

Company Overview  Low Fuel Cost: with the recent low fuel prices, J.B Hunt Serving as a transportation and logistics company in North is able to reduce one of its largest expenses which allows for America, J.B Hunt is one of the largest in the industry with increased net operating profit. a $7.3 billion market cap. J.B Hunt provides a number of different services by utilizing its four main business  Capital Expenditures: J.B Hunt’s management uses segments. Their services include intermodal, supply chain their debt to finance large capital expenditures fueling their solutions, light-asset and non-asset transportation solutions, growth. In 2014, the highly levered trucking company spent full-load, and dry-van services. They retain a diverse group $660 million towards replacing and growing their fleet. of customers across many different industries throughout the US, Canada, and Mexico. Most notable is Union Pacific,  Major Railroad ties: J.B Hunt has contracts with major Norfolk Southern Railroad, Wal-Mart, and many other railroads, such as Union Pacific and Norfolk Southern, to guide Fortune 500 companies. For Fiscal year end 12/31/14, their their unique intermodal service. They work collaboratively to total revenue grew 9% to $374.8 million. maintain their competitive advantage with the intermodal industry. Stock Performance Highlights 52 week High $93.50  Strong Intermodal Demand: in recent years there has 52 week Low $71.00 been an extremely large amount of demand for intermodal Beta Value 0.935 transportation. With the economy growing at a strong rate, J.B Average Daily Volume 828,200 Hunt is positioned to see large growth in this segment.

Share Highlights  Low interest Rates: The highly levered trucking Market Capitalization $10.66B company is able to capitalize on low interest rates, allowing Shares Outstanding 116.52m them to expand at a rapid rate. They are also able to finance their EPS (2014) $3.16 assets with a lower cost of debt. P/E Ratio 28.96 Dividend Yield 1.00% Dividend Payout Ratio 25% One Year Stock Performance

JBHT vs. S&P 500 Company Performance Highlights ROA 11.03% ROE 31.12% Sales $5.55 b

Financial Ratios Current Ratio 1.14 Debt to Equity 77.50%

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From the end of Q1, March 31st, to the end of Q3, Economic Outlook September 30th, we expect real GDP growth to be 3.0%. Economic Outlook Our reasoning behind the growth is that we believe 2014 was a great year for our economy, and great years are historically shown to be followed by good years.VI Through Based on our analysis of the economy, the trucking our analysis, we have found that January is a strong industry, and specific company details, we recommend J.B. indicator for how the year is going to move. When we Hunt Transportation Services (JBHT) as a HOLD. The examined the price of the S&P 500, we noticed the index diverse combination of supply chain management services fell 3.1% in January, aligned with how the index reacted in they provide gives them a unique advantage within their January 2014. This shows that 2014 and 2015 real GDP data industry. Their intermodal segment (JBI) gives them a huge are going to be somewhat similar, aside from a few advantage over their competitors because they have unique economic indicators. Due to the fact that real GDP growth contracts with many of the big railroad companies in the reached 5.0% by the end of Q3 in 2014, we are confident United States. Short-term decreases in fuel prices has made that, in the short term, real GDP growth will reach 3.0%. In J.B Hunt an attractive transportation option, however we do regards to the transportation industry, the aforementioned not believe fuel prices will remain this low moving forward. increase in growth should raise economic variables such as Once fuel prices rise, it will become more expensive to use nonresidential fixed investments, consumer spending, and trucking as a mode of transportation, thus lowering their demand for transportation services. Going forward, we are demand. We believe their earnings will remain fairly stable confident the economy will continue to grow, reaching 4.0% moving forward, however we do not foresee any drastic real GDP growth by April 2017. At that time, the economy company or market changes resulting in extreme growth for will have stabilized oil prices and will have experienced the the highly levered trucking company. full effects of the previous year’s cheap oil prices. As a result, consumers will become more comfortable with their spending and savings habits Economic Outlook Interest Rates

In the short-term, we believe the Fed will begin to gradually Real Gross Domestic Product raise the federal funds rate in March 2016, thus decreasing the Real GDP has grown by 2.2% and 2.4% in 2013 and 2014 amount of loanable money, and effectively increasing the 30 respectively. 2014 growth is primarily due to an increase in year Treasury bond yield. This will not cause any drastic personal consumer expenditures, exports, local and state changes within the next year for the transportation industry. We government spending, residential fixed investments, believe the 30 Year Treasury bond yield will rise to a range of nonresidential fixed investments, and private inventory 3.75% - 4.5% by the end of 2017. We believe this will happen investments.II This slight increase in real GDP represents a because we expect real GDP growth to hit 4% by April 2017, modest improvement in the overall state of the economy. Q1’15 and the Fed will raise the federal funds rate to pace the economy. data suggests that personal income is up 0.3% while personal This will cause the cost of debt for firms to increase, making consumption expenditures (PCE) is down 0.5%.III This indicates debt financing more expensive. The transportation industry is an that the average consumer has more money but is choosing to extremely capital intensive industry, meaning an increase in the VII save it. Stronger real GDP growth indicates a healthier overall 30 Year Treasury Yield will significantly impact the industry. economy. When the economy is healthy, consumers and We expect this will slow growth within the industry. businesses typically spend more money on goods. Therefore the economy directly relies on the transportation industry to Government Regulations transport these goods across the country. Demand for While government regulations are implemented to ensure transportation services is linked to growth in the economy. In success and long term sustainability for our country, their 2002, real GDP growth was 1.8% and over 10 percent of that actions can create disadvantages for certain companies real GDP was contributed by transportation goods and overall business model’s. The Environmental Protection services.IV This demonstrates how important the health of the Agency (EPA) has an internal division whose primary focus economy is to the transportation industry. is on transportation and air quality. This puts the V transportation industry under a constant microscope for ways to decrease their environmental footprint.

The EPA’s main focus is to reduce air pollution for certain sources such as trucks, non-road engines, equipment, and vehicles.VIII While we expect the transportation industry to experience volume growth due the positive economic outlook moving forward, government regulations from the EPA could restrict a surging industry. One of the EPA’s main goals is to reduce greenhouse gas emissions, which is a part of the government's Clean Air Act. In order to effectively implement their agenda, the agency and the National Highway Traffic Safety Administration are taking coordinated steps to incentivize

2 | Page production of more eco-friendly on-road vehicles and engines.IX years prices should be back to normal levels of about $95 a In result, the transportation industry would face external barrel. pressures to allocate capital towards newer equipment, hindering their ability for other possible ventures. Capital Markets Outlook Hours of Service, by the Federal Motor Carrier Safety Capital Markets Outlook Administration, yields another potential risk to the transportation industry. The regulation essentially restricts The S&P Industrials Index has been highly correlated with the drivers’ hours of service after a certain amount of time has performance of the S&P 500 over the past 3 years. The S&P passed.X In order to retain high driver and asset Industrials Index has slightly outperformed the S&P 500 with productivity, it makes financial sense for a trucking firm, for annual returns of 17.94% and 17.55% respectively. We expect instance, to allow a driver to go beyond their required hours this trend to continue going forward due to our prediction that of service. However, if a driver were to fall asleep at the real GDP growth will reach 4.0% in 2017, thus increasing the wheel or get in an accident, the company would be held need for transportation services. liable for all damages along with hefty fines due to breaking the hours of service regulations. Tighter control over hours of service is problematic for the transportation industry since it yields the risk of excess capacity and higher costs Industry Analysis due to higher demand for drivers. While we do not foresee any changes in government regulations to the transportation industry within the coming 6 months, we are confident there Industry overview will be an increase in government regulations in the next 2-3 According to the Global Industry Classification System years, having an impact on the transportation industry's (GIS), the highly cyclical industrials sector is comprised of growth potential. three industry groups followed by thirteen distinct industries. The three industry groups are capital goods, Energy commercial services, and transportation. The capital goods In recent months crude oil has fallen to record lows of about industry group consists of aerospace and defense, building $45 a barrel. This sharp drop in price per barrel is a direct products, construction and engineering, electrical result from the increase in OPEC extraction creating a equipment, industrial conglomerates, and machinery. The global surplus. For over 13 straight weeks there have been commercial services and supplies industry concludes the sharp inventory build ups of nearly 10 million or more Commercial services industry group. The third, and final, barrels a week bring commercial inventories to an 80-years industry group is transportation which includes air freight high of 483.7 million barrels.XI The chart below shows the and logistics, airlines, marine, road and rail, and drastic increase in supply, which has driven down prices at transportation infrastructure. Throughout this report, we will staggering rate due to the demand failing to keep up with the be analyzing the transportation industry group, specifically supply growth. the road and rail industry.

Sub-Industry The trucking industry is generally regarded as a key economic indicator of the economy’s overall health. In a healthy economy, real GDP is growing, imports and exports are increasing, and businesses and consumers are spending more money. An essential service needed to bring high economic activity together is trucking. After the recession in 2008, trucking companies were significantly underperforming. Since 2009, however, trucking revenue has grown 24.9%, increasing a substantial amount each year. This shows that as the economy has recovered, trucking demand has grown stronger. A key competitor to trucking services are railroads. They provide a cost effective and fuel efficient alternative to trucking transportation.

XII However, crude oil is currently at a historical low price. Low fuel prices are allowing trucking companies to lower their rates, These low oil prices help boost our domestic economy because restricting their competitors’ advantage. A key competitive the individual consumer saves money at the pump and can spend advantage that trucking services provide over other modes of it elsewhere. However, on the other side for producers these low transportation is flexibility and final mile delivery. The industry oil prices mean cuts to profit margins or even overall losses. We is capable of supplying clients with a more diverse service do not believe that this leave of output will be sustained for selection and increased mobility. much longer. We believe that crude oil with slowly climb back up to the range of $60-$65 a barrel by September 2015. We Services believe this price increase will be a result of less oil extraction The following chart represents the different services provided by reducing supply and an increase in demand. Within the next 2-3 the trucking industry and the percentage of total revenue that 3 | Page they generated in 2014. Truckload carriers and less-than- Recent Developments and Industry Trends truckload, or LTL, carriers represent the most significant general services within the industry. Other transportation services, such  Strong Demand: A growing economy, rising trade as logistics, are usually merged with the aforementioned volumes, and increased per-capita disposable income have services. Full truckload shipping, or FTL, is a trucking service caused trucking demand to skyrocket. Roughly 60% of trade that offers direct transportation as opposed to LTL, which has to controlled by NAFTA and the United States was shipped via make many stops for selective orders. The various services freight trucks. Fourth quarter real GDP grew 2.2% in 2014. A categorized under LTL and FTL are dry van shipping, flatbed stronger real GDP suggests higher economic activity along with shipping, and refrigerated shipping. Dry van transportation higher trade volume. This means a higher demand for trucking simply refers to transporting freight without temperature services.XIV In addition to the recent economic growth last controls. This is the most common service provided along with quarter, we expect real GDP growth to rise to 4.0% by April the most versatility. Flatbed trailers are required to ship items 2017. This means the demand and profitability of trucking such as steel, lumber and heavy machinery. In order to offer transportation is going to inflate as time goes on. The lower fuel value to the agriculture sector, trucking companies offer costs are also increasing personal income. While consumer refrigerated freight to ship their products. The trucking industry's spending has yet to increase from lower gas prices, we expect diverse service selection is exhibited in the different business the economy to feel the effects from higher consumer spending segments companies retain. Popular service segments are sooner rather than later. With more spending and higher trade intermodal, logistics services, and capacity solutions. When volumes, we are confident the trucking industry is primed to products are shipped via more than one mode of transportation, sustain strong demand moving forward. the service is considered intermodal. The most common form of intermodal transportation is rail to truck, however dryage  Tightening regulations: The government's increase in services provide transportation from ocean ports to trucks. regulations has presented the trucking industry with significant challenges ahead. Most notable is the tighter regulation on limited hours of service. Essentially, this regulation restricts drivers’ hours of service after a certain amount of time has passed. In result, trucking companies’ driver and asset productivity could fall, along with the risk of excess capacity.XV Limited driver hour’s means companies could have to employ more workers in order to meet their demand, raising driver demand and wage expenses.XVI

 Air Quality Regulations: Federal agencies, such as the EPA, have been pushing for lower greenhouse gas emissions and lower fuel consumption for several years. By teaming up with XIII the National Highway Traffic Safety Administration, the EPA has made progress with manufacturers towards producing more Products eco-friendly on-road vehicles and engines.XVII From the trucking The chart below shows the percentage of total revenue that the industry's perspective, they could potentially have to purchase trucking industry made from shipping these types of products. newer, more expensive trucks and supplement the added expense Manufacturing goods account for the largest percentage of total with high maintenance costs. revenue with 38.2%. In order to limit their exposure to industry risks, they diversified the sectors they do business with. Wholesale and retail goods account for 31.8% of total revenue  Decrease in fuel costs: Fuel costs are a significant combined. Oil refiners and agricultural goods show where future operating expense for the trucking industry. While WTI crude growth may lie for the trucking industry. oil prices were comfortably in the 100 dollar range last April, they have experienced a dramatic drop since then, and have stabilized, as of April 2015, in the mid-upper 50 dollar range. This dramatic drop in operating costs yields the trucking industry with options to allocate their cash savings elsewhere. According to the American Trucking Association, aside from labor, diesel fuel is the highest expense for the industry and can be as much as 20% of their operating costs.XVIII In the short term, trucking companies in the industry can receive higher profits from the lower crude oil prices through business objectives such as lowering their rates. However, their cash savings from reduced operating costs could potentially yield higher capital for expenditures to fulfill long term volume growth.

 Increasing driver shortage: Driver shortage debatably presents one of the highest risks to the industry. According to the American Trucking Association, there are approximately 25,000 4 | Page trucker jobs unmet.XIX There are simply not enough experienced Bargaining power of buyers truck drivers in the job market to meet the demand. An aging The bargaining power of buyers is relatively moderate in the population also has many drivers set for retirement in coming trucking industry. While there are lots of buyers, or businesses years. In result of increased driver demand, the drivers could out there in need for transportation, they buyers do not typically demand higher salaries and bonuses, which is putting pressure have leverage to drive down the shipping rates. However, larger on the trucking industries expenses.XX Due to the attractive real companies with frequent bulk orders have an increased amount GDP growth we foresee moving forward, and reduced fuel costs, of bargaining power to discount the rates. the trucking industry faces challenges to avoid excess capacity. Bargaining power of suppliers Markets and Competition In order to effectively assess the buying power of the suppliers, As shown by the 10 trucking firms below, the trucking industry or trucking companies in this case, we would need to analyze faces strong competition to fulfill the industry's demand. Since each business segment since a key indicator of success in the the trucking industry provides a flexible, and diverse, service trucking industry is competitive advantage. All of the selection, companies are able to distinguish themselves from companies, for the most part, have a fleet that can transport your competitors to find their market niche. The major players in the products. However, what separates the major players are the industry are JB Hunt, Old Dominion, Swift, Landstar, Knight, uniqueness of their service, such as price, timeliness of delivery, Con-way, and Werner, Heartland, Forward Air Corporation. or intermodal services. Intermodal services, for example, are a unique service offered that pairs other modes of transport with trucking to provide a cost effective mode of transportation. Company Market Cap Revenue (in millions) Overall, we assess the bargaining power of suppliers to be low.

JBHT 10.51B $6,170.00 Industry Leaders and Followers ODFL 6.25B $2,790.00 In order to effectively understand JB Hunt compared to its peers in the trucking industry, we have aligned their key industry SWFT 3.62B $4,300.00 ratios next to each other. An effective valuation method in order LSTR 2.87B $3,190.00 to determine the company’s attractiveness as an investment, is to KNX 2.60B $1,100.00 not only understand where the company’s strengths lie, but also where its peers have an advantage over them. CNW 2.42B $5,810.00 WERN 2.20B $2,140.00 Profit Operating P/E D/E ROA Company HTLD 2.01B $871.00 Margin Margin 2015 % %

Porter’s 5 Forces JBHT 6.80% 10.24% 27.3 77.50 12.70 Threat of new entrants The threat of new entrants is relatively high due to the fact that ODFL 9.60% 15.80% 19.9 10.42 13.21 anyone who has a truck can essentially join the trucking industry. While there are major players in the industry, the SWFT 3.75% 8.02% 14.8 319.20 7.50 market is not saturated, leaving room for new entrants. LSTR 4.36% 6.98% 18.6 29.89 13.79 Competitive rivalry We rate the level of competitive rivalry within the trucking KNX 9.33% 13.27% 22.0 19.79 9.68 industry as high. Trucking companies differentiate themselves CNW 2.36% 4.45% 15.1 62.41 4.88 through unique services provided, transportation rates, and volume of sales. Companies are competing on these factors by WERN 4.61% 6.58% 18.9 8.99 6.21 using strategies such as only focusing on short haul orders, implementing intermodal services with the railroad industry, and HTLD 9.74% 11.28% 21.4 5.16 8.26 using the low oil prices to reduce their rates. Through the high level of competition, some of the major players are JB Hunt, FWRD 7.83% 12.41% 21.0 0.34 11.56 Heartland Express, Knight Transportation, Old Dominion, and Swift Transportation. .  We examined the profit margin of the following 9 Threat of substitutes companies in order to compare the financial health of each We rate the threat of substitution high. Being that, in the company across the industry. Profit margin is useful for transportation industry, the transportation service provided is identifying the amount of net income per dollar of sales essentially the product they offer, there many other services generated. Essentially the ratio gives us an understanding of how offered to replace trucking. Aside from future innovation in the much revenue is kept after all expenses are paid. Among the 9 industry, currently there are several other transportation services peer companies, Heartland, Old Dominion, and Knight offered to substitute trucking, such as rail, air freight, and marine Transportation are the most profitable companies, with JB Hunt services. In result of the high threat of substitutes, cost effective in the middle of the pack. This shows J.B Hunt’s competitive options tend to be the leading factor for business. 5 | Page advantage does not come from being the most profitable trucking company in the industry.

 We also analyzed each companies operating margins in the trucking industry to measure their efficiency. Operating margin measures what amount of revenue is left over after paying off all of their variable and operating costs. A higher operating margin essentially shows investors how much the company is making from their core business plan. Old Dominion and Knight Transportation represent the highest operating margins in the industry, with 15.80% and 13.27% respectively, showing they are more efficient than their peers.

 The P/E ratio tells us expected future growth among these companies. The higher the P/E ratio means higher expected growth in the future. J.B Hunt leads the industry in this regard, Corporate Strategy reiterating our analysis on why they are an attractive investment J.B Hunt seeks to build relationships with customers who view moving forward. supply chain management as an essential business function to their core operations. J.B Hunt works synergistically with these  The debt to equity ratio gives us an idea of how a company customers to minimize their costs, and add value to their is financed. A higher D/E ratio indicates the company has more businesses. Capacity-focused solutions are provided by JBHT debt than equity financing. Higher levered firms are riskier and through a multimodal strategy. Their intermodal services have more volatile earnings. We expect the yield of the 30 Year provide fuel-efficiency, cost effectiveness, and reduce the Treasury Bonds to increase to about 4.5% by 2017, thus making emission of greenhouse gas. All of these factors are becoming it more expensive for companies to borrow money. Aside from increasingly more important to their customers. Swift Transportation, JB Hunt has the highest D/E ratio in the trucking industry. This represents where one of JB Hunt’s Life Cycle weaknesses lie, due to the fact that they are riskier than their We believe J.B Hunt is currently in the growth stage of its peers. business life cycle due to its organic growth in revenues over the past five years. Their operating revenue has increased from $2.88 billion in 2009, to $6.17 billion in 2014. This huge change  Return on Assets (ROA) indicates how well companies are represents a 53.3% increase over the 5 year span. We attribute utilizing their assets to produce revenue. Landstar, Old this growth to the improving economy, which relies heavily on Dominion, and J.B Hunt represent the highest return on assets in the transportation industry to move different kinds of products the trucking industry, meaning they are more efficient at using all over the country. We expect real GDP to continue to grow by their assets to produce revenue than their peers. 4% over the next 2 years, which indicates an improving

economy. We project J.B Hunt’s revenue to continue to increase

in the coming years at a rate of 10% year over year for the next 2 years, similar to the growth of the past 3 years. Company Analysis

General Information J.B. Hunt is a North American transportation company that provides logistical solutions, delivery, and transportation services. J.B Hunt transports full-truckload containerized freight using its own employees, or independent contractors. Other services provided by J.B Hunt include freight transportation, labor, revenue equipment, local and home delivery services, and systems. JBHT utilizes its connection of cross-dock service centers located all over the United States to provide its services. J.B Hunt has a variety of business segments which can be split up into Intermodal (JBI) being the largest followed by Dedicated Contract Services (DCS) then Integrated Capacity Solutions (ICS) and Truck (JBT). Financial Summary Revenue and operating income both grew almost 10% in 2014 reaching $6.2 billion and 182.9 million respectively. Earnings per share grew 9.2% in 2014. EPS in 2014 increased from $2.87 per share to $3.16 per share. According to J.B Hunt’s clear 2015 guidance, management expects overall revenue to increase 9- 12% and operating income to increase by 11-14% in 2015. Fuel 6 | Page prices being 7-11% of overall operating expenses, 3rd to rents Hunt’s revolving debt. Aligned with J.B Hunt’s managerial and purchased transportation and salaries, with current oil prices guidance, we expect to see a 3-5% increase in annual interest and improving economy will allow J.B Hunt to achieve these expense. growing results. Distribution Products and Markets J.B. Hunt engages in multiple forms of logistical solutions. Since More than 60,000 containers and trailers, and 25,000 carriers, 1989 they have been leading the industry in intermodal make up JBHT’s fleet. This massive fleet enables the company transportation solutions by owning the largest fleet of containers to provide a number of different services consisting of that is committed to work in coordination with BNSF and customized freight movement, revenue equipment, full-truckload Norfolk Southern. Their Dedicated Contract Service business freight transportation, and systems services. J.B Hunt provides segment specializes in the design, development, and execution its services to a variety of customers throughout the US, Mexico of supply chains. J.B. Hunt has a fleet of trucks ranging from and Canada. Rail companies like Burlington Norfolk Southern flatbeds to refrigerated trucks to help meet any all customer and Union Pacific work with JBHT on intermodal transportation. needs.XXI By working with these rail companies, J.B Hunt is able to transport a wide variety of products from many different Suppliers industries. These products include chemicals, plastic, auto parts, J.B. Hunt relies heavily on rail for its intermodal segment. paper products, lumber products, consumer goods, food, and Contracts with BNSF in the west and Norfolk Southern in the manufacturing supplies. To move all of these different types of east have positioned J.B Hunt to be at the front of the intermodal products, J.B Hunt uses a wide variety of trucking solutions. market. Outside of the intermodal segment, J.B. Hunt relies on They can provide refrigerated trucks, flatbed trucks, less than private contracts to coordinate, develop, and execute logistical truckload shipments, truckload shipments, expedited shipments, solutions for various firms that need produces to be shipped. For and final mile shipments. trucks and other equipment, J.B. Hunt relies on domestic wholesalers to grow their asset-backed company. Although it J.B Hunt has four primary business segments that it offers its may seem to have a high barrier for entry into the industry, the services through. These segments are Intermodal (JBI), infrastructure built for the trucking industry makes it easy for an Dedicated Contract Services (DCS), Integrated Capacity individual to get a loan and buy a truck and develop a business Solutions (ICS) and Truck (JBT). As we stated earlier, JBHT overnight. works with Class I railroad companies such as Union Pacific and Norfolk Southern to provide its intermodal services. They also Recent Earnings and guidance provide intermodal services for Puerto Rico and Alaska by Fourth quarter earnings for J.B. Hunt were released on Feb 24. partnering with marine transport providers. JBHT’s Dedicated Investors were pleased with the results. The company Contract Services “specializes in the design, development, and experienced strong growth in earnings and operating income execution of supply chain solutions that support virtually any while revenues fell short of predictions. Fourth quarter earnings transportation network.” Essentially this service is centered on were $110 million, up 19.5% from the previous year’s quarter. developing a supply chain plan for their customers and executing Operating earnings followed suit being up 19% year-over-year. the plan, using J.B Hunt’s transportation assets. JBHT’s Earnings per share was also up a surprising 21% year-over-year Integrated Capacity Solutions involves utilizing its partnerships to 93 cents per share. Unfortunately, J.B. Hunt missed overall with other carriers to ensure a timely, efficient, and cost effective revenue. Operating income growth reflects higher revenue transportation option to their customers. This service is provided through all business segments and is currently benefiting from by teaming up with other trucking companies to transport the rapid fall in fuel prices. This canceled out J.B Hunt’s products faster and more effectively than what J.B Hunt could increased wage expense they had to pay to hire and retain provide using only their own assets. With fuel prices as low as drivers. they are right now, we expect revenue generated by intermodal services to increase along with a slight increase in margins due J.B. Hunt has a strong market position going forward. We are to reduced fuel expenses. Their intermodal segment, JBI, has the confident that overall revenues will increase by 9-12% in 2015. largest growth potential due to the nature of the business and use We are also confident the highly levered trucking firm will incur of more cost efficient modes of transportation, such as rail for about $640 million in capital expenditures, due to clear long distances. We also expect their trucking segment to managerial guidance. These capital expenditures will go to experience an increase in revenue within the next 2 years. replacing 3,300 trucks, 300-500 containers and 4,000 trailers. However, due to our expectation of oil prices rising to $85-90 a The expenditures will also go towards adding 1,000 trucks, barrel by September 2017 that will hinder the business segments 5,000 containers, and 1,000 trailers along with updating facilities growth. and internal technology. J.B Hunt is currently the largest intermodal player with a growing 25% market share. For most Costs producers, transportation of goods makes up their greatest cost. Falling fuel prices was helpful in offsetting a 13% increase in J.B Hunt’s size allows for them to reduce costs and increase costs that was paid to hire and retain drivers, higher worker capacity through collaborative means. As the economy recovers, compensation and accident costs, and higher costs of equipment the demand for freight will continue to grow moving forward. ownership. This growth in operating earnings also provided a boost in net income and helped offset the effect of higher net interest expense from purchases of new equipment with J.B

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Competition Catalysts for Growth or Change J.B Hunt’s intermodal segment competes with other intermodal Oil prices companies, and sometimes, railroad companies. The DCS With oil prices decreasing, the trucking companies’ lowered segment competes with customers’ private fleets, private fleet expenses allow for an increase in operating margins. One of J.B. outsourcing companies, companies that lease equipment, Hunt’s largest expenses is fuel. While lower oil prices reduces truckload carriers, and local service providers. Their ICS their operating expenses, it is important to note that is also segment competes with third party logistics companies and increases demand for their services. Lower fuel prices means the freight brokers. Lastly, their trucking segment competes with trucking companies can yield lower shipping rates, increasing thousands of other smaller trucking companies, however many their attractiveness as a mode of transportation. Once crude oil of these companies are not big enough to operate across North prices begin to start stabilizing around the low $50 range, which America like JBHT does. JBHT’s top competitors are Landstar we are confident is happening now, J.B. Hunt is in the driver System Inc, Schneider National Inc, and Swift Transportation seat to directly benefit. This also leads to increased consumer Company, Old Dominion Freight Line, and Knight spending meaning a larger demand for goods and services using Transportation. transportation as a means to transport products from producers to consumers. The following chart compares J.B Hunt to Landstar System, Swift Transportation, Old Dominion Freight Line, Knight On the other hand, the decreasing oil prices reduces a major Transportation and the trucking industry averages. J.B Hunt revenue stream. Since more oil is being produced domestically clearly has the largest market cap out of all of these companies and transported via rail to refineries with the decrease in oil with a cap of $9.96 billion. J.B Hunt generated significantly prices is making domestic production less economical for higher revenue and net income compared to the other companies producers to extract oil since they are losing money by and the industry average with $6.17 billion and $374.79 million operating. J.B. Hunt allocates 60% of their revenue to respectively. It also has a P/E ratio of 27.06 which is higher than intermodal services. If the railroads start losing capacity, so will the industry average by 1.00. JBHT’s P/E ratio is high relative to J.B. Hunt. However, due to the trucking companies growing the overall market, but we believe it reflects the high level of diverse business segments, we are confident any negative effects growth to come. JBHT also has the highest EPS of $3.16 per from the railroads will be balanced out from increased trucking share indicating that it is the most profitable company in demand. comparison with its competitors. We believe JBHT has been able to outperform their competitors due to the intermodal Consumer spending services they offer. Intermodal services account for roughly 60% In the event consumer spending increases, the transportation of its total revenue, equaling $3.72 billion. J.B Hunt’s industry would experience a direct increase in demand for their intermodal segment has been the industry leader during the last services. More consumer spending means higher sales for ten years. They compete with other companies on a number of companies leading to increased demands for industrial goods, different variables such as price, timeliness of deliveries, coal, and food and consumer goods. The higher sales would be capacity, and carrier availability for logistical purposes. an indicator to more transportation usage, which would increase demand for J.B. Hunt’s services. Whether customers decide to Variables JBHT LSTR SWFT ODFL Industry ship their product via rail or truck, J.B. will benefit from either mode. 60% of their revenue comes from their intermodal Market 9.69B 3.15B 4.02B 6.25B service, which involves working with the rails to provide a Cap unique service.XXII A potential catalyst to the increase in Employees 20158 1211 21100 16443 4.8K consumer spending is when our economy will start to feel its impact. Research shows that income is up but consumer Revenue 6.17B 3.19B 4.30B 2.79B 1.19B spending is down. This implies that people are saving their cash Gross savings rather than putting it back into the economy. When this 0.18 0.21 0.19 0.29 0.19 margin begins to happen will be crucial for this industry. EBITDA 926.04 249.80 582.63 597.06 144.71 (millions) Coal Operating The government, specifically the EPA, is pushing for cleaner 0.1 0.07 0.08 0.16 0.07 margin energy products and reducing CO2 emissions. Coal is an Profit environmentally harmful product that is widely used by energy 0.07 0.04 0.04 0.09 0.06 Margin companies. There has been increased pressures from the Net government to restrict domestic coal use and a push towards Income 374.79 138.81 161.15 267.51 other sustainable resources such as natural gas. This change in (millions) government policy would negatively affect J.B. Hunt’s EPS 3.16 3.07 1.12 3.1 0.78 intermodal segment. 60% of the trucking companies’ revenue comes from their JBI segment. The JBI segment deals with P/E 27.06 22.87 25.25 23.48 26.06 supplying the railroads a joint transportation service. Therefore PEG (5 if there is a reduction in coal use, then J.B.Hunt’s capacity year 1.6 1.18 0.96 0.96 1.17 would take a hit indirectly through the railroads losing expected) capacity.XXIII While we believe the government will begin to P/S 1.63 0.99 0.94 2.25 0.89 reduce coal use, we are confident J.B. Hunt’s growth in their 8 | Page

ICS segment will counterbalance the negative effects from a capacity issues are the two key negatives to look out for in reduction in coal transportation. 2015.XXIV

Key Investment Positives Valuation Analysis

 The demand for transportation services is correlated with We generated J.B Hunt’s intrinsic values using the strong real GDP growth. As real GDP continues to grow, trade enterprise Discounted Cash Flow (DCF) valuation, volume will grow through imports and exports. enterprise Economic Profit (EP) valuation, Dividend Discount Model (DDM), and relative P/E valuation. Our  The increase is capacity will set up highly leveraged analysis generated a recommendation of a HOLD. We companies for success in 2015. Higher leveraged companies will believe J.B Hunt does have some investment potential in the have more money for capital expenditures to handle the increase future, however nothing drastic enough to make it an in volume. immediate buy.

 Their diverse business segments and customer base is one of The DCF and EP valuation methods yielded an intrinsic their strong investment positives. While the outlook for the oil value of $93.08 per share. This is slightly higher than the market is purely speculation at this point, J.B. Hunt’s strong stock price of $90.18 as of April 17th, 2015. The DDM intermodal demand allows them to benefit either way the prices valuation yielded an intrinsic value of $80.84 per share move. If oil prices stay low, transportation demand via truck will which is a 10.36% discount from the current stock price. In remain strong and J.B. Hunt is in the driver seat to retain those regards to our relative P/E valuation, we generated an benefits. If oil prices rise, their strong intermodal demand will intrinsic value of $62.62 using the 2015 P/E estimation and allow them to balance their higher expenses with higher railroad an intrinsic value of $58.74 using the 2016 P/E estimation. demand. The relative 2015 P/E valuation and the relative 2016 P/E valuation yielded a 30.6% discount from the stock price and  J.B Hunt retains an industry leading P/E ratio, strong a 34.9% discount from the stock price, respectively. operating margin ratio, and strong historical returns to their shareholders. General Assumptions Continuing Value To determine the continuing value assumption, we considered real GDP growth, and the cost of debt due to the Key Investment Negatives fact that J.B Hunt is highly levered. Demand for transportation services is linked to the health of the economy and we do not expect any drastic economic growth  J.B. Hunt’s exposure to direct risks affecting the trucking going forward. We also considered how volatile J.B Hunt’s industry as a whole. Tightening regulations, which are calling earnings are to changes in interest rates and the cost of debt. for limited hours of service for drivers, the EPA’s constant For these reasons, we decided to choose a conservative CV microscope on the industries emissions, and unusual weather all growth of 4.20%. could hinder J.B Hunt’s ability to fulfill demand. Revenue Decomposition  Finding ways to hire more drivers is an uphill climb as well. We expect their JBI business segment’s revenue to increase The industry is facing a deficit in the volume of experienced from 2015-2020 by an average of 5%. The JBI segment drivers due to an ageing population. accounts for the majority of J.B Hunt’s profits and we expect this to continue into the future due to the contracts  While J.B. Hunt is already significantly leveraged, and they have with the major rail companies. Management increasing their capital expenditures, they are going to have to guidance also revealed that they plan to spend $165 million get creative to offset the added expenses. to expand the JBI segment in 2015. The DCS segment is expected to decrease from 2015-2020 by an average of 1.5%  Our nation’s ambition to become more environmentally due to the amount of expiring contracts and the fact that this friendly hurts J.B. Hunt along with the rest of the industry. If the segment has not grown much over time. JBT has been the government seeks to reduce greenhouse emissions, trucking weakest segment in recent years. We expect this to continue companies demand will decrease and they will have to purchase because J.B Hunt has been shifting its focus to supply-chain more fuel efficient trucks, a huge effect on their bottom line if management and intermodal functions as supply chains have not aided by growth in their other segments. become increasingly more complex. The ICS segment is directly related to the DCS and JBI segments so we expect  The trucking companies’ heavy investment in intermodal this segment to only grow moving forward due to our service creates exposure to railroad risk. Railroads are currently optimistic expectations for the JBI segment. The ICS under pressure to purchase new locomotives derived from the segment is also has the strongest year over year growth out new tier 4 air quality regulation. The aforementioned railroad of all of the segments. We expect it to grow by an average risk place added concerns over capacity issues. Rising costs and of 9.9% from 2015-2020. 9 | Page

Income Statement free cash flows. The rest of our forecasted free cash flows J.B Hunt’s two largest expense categories are rent and grew at the average capital expenditure growth percentage. purchased transportation expenses and salaries, wages, and After discounting each year’s free cash flows and the CV by benefits expenses. These two categories will undoubtedly our WACC of 6.48%, we derived an operating value of continue to account for the majority of their expenses $12.25 billion dollars. moving forward. These two expense items have only increased over time based on the historical data in our In order or calculate J.B Hunt’s value of equity, we backed model, and we project them to continue to increase from out their debt (short term, long term, and revolving), present 2015-2020. In order for JBHT to continue to grow and be an value of operating leases, underfunded pensions, and industry leader in the future, they must expand their fleet employee stock options. After adding back their excess cash and contract the necessary amount of drivers to meet their and accounting for the fraction of the fiscal year that has customers’ needs. We expect rent and purchased elapsed, our calculation resulted in a final DCF/EP intrinsic transportation expenses to grow by an average of 8% from value of $93.08 per share, as of April 17th, 2015. Due to the 2015-2020. Similarly, we predict salaries, wages and economic, industry, and company-specific analysis benefits expenses to grow by an average of 8.4% from incorporated into our model, we placed a strong emphasis 2015-2020. on this valuation in determining our target price.

Balance Sheet Dividend Discount Model (DDM) The trucking industry is extremely capital intensive so it is By discounting the forecasted dividends of J.B Hunt by our no surprise that net PPE is JBHT’s largest asset account. For expected cost of equity, 6.98%, our dividend discount 2015, we used management’s guidance to project net PPE. valuation resulted in a lower intrinsic value of $80.84. We In 2015, they plan to spend $640 million in capital expect their payout ratio to remain stable moving forward, expenditures, so we grew gross PPE accordingly. From so we forecasted their dividends based on their average 2016-2020 we grew capital expenditures by looking at payout percentage, historically. Due to the lower DDM historical growth and applying this rate going forward. Due intrinsic value, we gave this valuation method less emphasis to the fact that J.B Hunt invests so much in PPE, they are in determining our target price. highly levered. Therefore it is no surprise that long-term debt accounts for a large portion of their liabilities. We Relative Valuation forecasted long-term debt by making it a portion of their For our relative valuation, we used the P/E and PEG ratios long-term assets and using this percentage as the growth in for 2015 and 2016. By eliminating the outliers, we came up long-term debt. This allowed us to project PPE while with 8 peer companies that are all comparable in size and growing long-term debt accordingly. revenue to J.B Hunt. After calculating their peer’s average P/E ratios, we came up with an industry average of 27.3 and Weighted Average Cost of Capital (WACC) 25.4 in 2015 and 2016 respectively. In addition, we also Cost of Equity derived their peer’s average PEG ratios, which calculated to We used the Capital Asset Pricing Model (CAPM) to 4.5 and 4.2 in 2015 and 2016 respectively. In order to obtain estimate the cost of equity for J.B Hunt. For the risk-free J.B Hunt’s relative 2015 P/E value, we multiplied our 2015 rate we used a 30 Year Treasury Bond which was 2.522%. EPS estimate, for J.B Hunt, by their peer’s 2015 average For the market risk premium we took the average of the P/E ratio. By applying the same process for the year 2016, historical risk premiums over the last 87 years between 30 we calculated J.B Hunt’s implied value, through the relative Year Treasury Bonds and the S & P 500. This gave us a P/E valuation, of $62.62 per share and $58.74 per share in value of 4.62%. To calculate the beta of the equity we 2015 and 2016 respectively. In regards to the PEG ratio, we averaged the weekly beta of the last four years to give us a obtained JB Hunt’s 2015 implied value through the relative beta of 0.935. PEG ratio by multiplying their 2015 EPS estimate by their 5 year EPS estimated growth, multiplied again by their peer’s Cost of Debt average PEG ratio. While the relative P/E ratio derived low To get the cost of debt we identified the outstanding bond intrinsic values for J.B Hunt, the PEG ratio calculated even with the longest yield to maturity for JBHT. This gave us a lower, more unrealistic, values of $22.87 and $21.39 per pre-tax cost of debt of 3.04% share, in 2015 and 2016 respectively.

Capital Structure and WACC We do not believe J.B Hunt’s capital structure will change Sensitivity Analysis in our forecast period based on managerial guidance. Sensitivity Analysis JBHT’s current capital structure, the cost of equity, the cost of debt, helped us calculate a WACC of 6.48% Our valuation model is sensitive to changes in key

assumptions that were made for inputs. We used data to Discounted Cash Flow and Economic Profit Analysis analyze the levels of sensitivity for various inputs. Our DCF and EP valuation for J.B Hunt resulted in a per share price of $93.08. Aligned with management’s capital Beta expenditure guidance, we expect capital expenditures to be Our beta calculation involves the average of raw betas $639.53 million in 2015, decreasing the trucking companies calculated for many different periods. Removing one can 10 | Page drastically change our average beta and influence our value. Changing our beta slightly from 0.935 to 0.685 increased our price per share to $131.26, nearly a 40% increase. However we this we remain confident that our beta is consistent with the market and reflects the true beta for our companies future.

Risk Free Rate The yield on Treasury bonds have been at their lowest levels for years. With the Fed potentially reducing their tapering program, it is crucial to analyze. An increase in 50 bases points would bring our price down to $83.47 per share. The face that a change like this more and more likely, we are able to see how the reliance of equity value on the current economic environment can change.

Cost of Equity and WACC As the key measures used to discount future free cash flows or dividends, WACC and Cost of Equity show a significant amount of influence on our intrinsic value. If the company were to increase its debt and become more risky, we see a significant decrease in price from $92.84 to $81.59 with an increase in only 50 bases points to WACC. However, we do not see this happening given company guidance.

Cost of Debt With J.B Hunt’s credit rating we do not see change in its cost of debt anytime in the near future. We expect the company to exhibit financial health and strength, but the potential for the risk free rate rising in the near future is important to look at for fluctuations in JBHT's cost of debt. However, even with a 50 bases point increase in cost of debt, the price per share decreases from $93.08 to $91.70. This slight decrease of 2.0% shows stability for their cost of debt moving forward.

CV Growth Analyzing the effect of different CV growth assumptions shows the differences between an optimistic and pessimistic analyst. Using an optimistic outlook of 5.2% growth, we see a price increase from $93.08 to $155.10, a 22.9% increase. Changing our analysis from a hold to a buy. However, given the nature of the trucking industry, we do not see this as being feasible.

Marginal Tax Rate and Equity Risk Premium Even though we do not anticipate any changes to these assumptions, it is still interesting to look at. An increase in marginal tax rate of 50 bases points would only bring the price down by a few cents. And if the equity risk premium changed from our 80 year historical average by a decrease of 25 bases points, the stock price would increase by 8 dollars, which is significant but the likelihood of this change happening is minimal.

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Citations XV Schmidt, A. (2015, January 2). Market Realist. Retrieved from An overview of J.B. Hunt Transport Services:

http://marketrealist.com/2015/01/overview-j-b-hunt- i transport-services/ Yahoo! Inc. (2015). Yahoo! Retrieved from Yahoo! XVI Finance: http://finance.yahoo.com/ IBISWorld. (2015.). IBISWorld. Retrieved from Industry Outlook: II Mataloni, L., Shoemaker, K., & Aversa, J. (2015, March http://clients1.ibisworld.com/reports/us/industry/industryoutl 27). U.S. Department of Commerce. Retrieved from National ook.aspx?entid=1150 Income and Product Accounts: XVII https://www.bea.gov/newsreleases/national/gdp/gdpnewsrele Quality, O. o. (2014, December 19). EPA. Retrieved ase.htm from Regulations & Standards: III http://www.epa.gov/otaq/climate/regulations.htm ECONODAY. (2015). Bloomberg. Retrieved from XVIII Economic Calendar : Associations, A. T. (2013). ATA. Retrieved from http://www.bloomberg.com/markets/economic-calendar Reports, Trends & Statistics: http://www.trucking.org/News_and_Information_Reports_E IV Technology, O. o. (n.d.). United Sates Department of nergy.aspx Transportation. Retrieved from Economic Impact on XIX Transportation : Schmidt, A. (2015, January 2). Market Realist. Retrieved http://www.rita.dot.gov/bts/programs/freight_transportation/ from An overview of J.B. Hunt Transport Services: html/transportation.html http://marketrealist.com/2015/01/overview-j-b-hunt- V transport-services/ ECONODAY. (2015). Bloomberg. Retrieved from XX Economic Calendar : IBISWorld. (2015.). IBISWorld. Retrieved from Industry http://www.bloomberg.com/markets/economic-calendar Outlook: http://clients1.ibisworld.com/reports/us/industry/industryoutl VI S&P Capital IQ. (2014, December 9). S&Q Capital IQ. ook.aspx?entid=1150 Retrieved from OUTLOOK 2015: A SEVENTH-YEAR XXI STRETCH: JB Hunt Transport, I. (2015). J.B. Hunt. Retrieved from http://www.netadvantage.standardandpoors.com/NASApp/N Our Solutions: http://www.jbhunt.com/solutions/ XXII etAdvantage/i/displayStovallsSectorWatchEditorialStory.do? Schmidt, A. (2015, January 2). Market Realist. &context=StovallsSectorWatch&prefix=i&docId=10006250 Retrieved from An overview of J.B. Hunt Transport 04 Services: http://marketrealist.com/2015/01/overview-j-b- VII Yahoo! Inc. (2015). Yahoo! Retrieved from Bonds Center: hunt-transport-services/ http://finance.yahoo.com/bonds;_ylt=AwrC2Q6CVDRVeFg XXIII Schmidt, A. (2015, January 2). Market Realist. AmWaTmYlQ;_ylu=X3oDMTByMjB0aG5zBGNvbG8DY Retrieved from An overview of J.B. Hunt Transport mYxBHBvcwMxBHZ0aWQDBHNlYwNzYw Services: http://marketrealist.com/2015/01/overview-j-b- VIII Quality, O. o. (2015, April 17). EPA. Retrieved from hunt-transport-services/ Transportation and Air Quality : http://www.epa.gov/otaq/ XXIV Schmidt, A. (2015, January 2). Market Realist. IX Quality, O. o. (2014, December 19). EPA. Retrieved from Retrieved from An overview of J.B. Hunt Transport Regulations & Standards: Services: http://marketrealist.com/2015/01/overview-j-b- http://www.epa.gov/otaq/climate/regulations.htm hunt-transport-services/ X FMCSA. (2015, April 2). Federal Motor Carrier Safety Administration. Retrieved from Hours of Service: http://www.fmcsa.dot.gov/regulations/hours-of-service

XI ECONODAY. (2015). Bloomberg. Retrieved from

Economic Calendar : http://www.bloomberg.com/markets/economic-calendar XII ECONODAY. (2015). Bloomberg. Retrieved from Economic Calendar : http://www.bloomberg.com/markets/economic-calendar

XIII IBISWorld. (2015). IBISWorld. Retrieved from Products & Markets: http://clients1.ibisworld.com/reports/us/industry/productsand markets.aspx?entid=1150 XIV ECONODAY. (2015). Bloomberg. Retrieved from Economic Calendar : http://www.bloomberg.com/markets/economic-calendar

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Important Disclaimer

This report was created by students enrolled in the Security Analysis (6F:112) class at the University of Iowa. The report was originally created to offer an internal investment recommendation for the University of Iowa Krause Fund and its advisory board. The report also provides potential employers and other interested parties an example of the students’ skills, knowledge and abilities. Members of the Krause Fund are not registered investment advisors, brokers or officially licensed financial professionals. The investment advice contained in this report does not represent an offer or solicitation to buy or sell any of the securities mentioned. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Krause Fund may hold a financial interest in the companies mentioned in this report.

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J.B. Hunt Transport Services, Inc. Key Assumptions of Valuation Model

Ticker Symbol JBHT Current Share Price $90.18 Current Model Date 4/17/2015 Fiscal Year End Dec. 31

Pre‐Tax Cost of Debt (2024) 3.04% Beta 0.935 Risk‐Free Rate 2.52% Equity Risk Premium 4.62% cost of equity 6.98% WACC 6.48% CV Growth of NOPLAT 4.20% CV Growth of EPS 4.20% Current Dividend Yield 1.00% Marginal Tax Rate 39.42% Effective Tax Rate 38.01% CV Growth J.B. Hunt Transport Services, Inc. Revenue Decomposition

Fiscal Years Ending Dec. 31 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E JBI Revenue (in millions) 3,071.00 3,456.00 3,687.00 4,150.14 4,608.45 5,003.08 5,410.86 5,826.10 6,070.79 Percent Change in Revenue 14.89% 12.54% 6.68% 12.56% 11.04% 8.56% 8.15% 7.67% 4.20% Loads 1,415,663 1,593,511 1,700,374 1,836,404 1,964,952 2,043,550 2,125,292 2,210,304 2,232,407 Percent Change in Loads 13.41% 12.56% 6.71% 8.00% 7.00% 4.00% 4.00% 4.00% 1.00% Revenue per load $2,169 $2,169 $2,169 $2,259.9 $2,345.3 $2,448.2 $2,545.9 $2,635.9 $2,719.4 Percent Change in Revenue per load 1.31% 0.00% 0.00% 4.19% 3.78% 4.39% 3.99% 3.53% 3.17% DCS Revenue (in millions) 1,080.00 1,231.00 1,394.00 1,462.75 1,593.79 1,716.50 1,806.54 1,937.32 2,018.69 Percent Change in Revenue 4.75% 13.98% 13.24% 4.93% 8.96% 7.70% 5.25% 7.24% 4.20% Loads 1,522,740 1,835,872 2,101,707 2,205,364 2,402,923 2,587,938 2,723,689 2,920,858 3,043,535 Percent Change in Loads 5.42% 20.56% 14.48% 4.93% 8.96% 7.70% 5.25% 7.24% 4.20% JBT Revenue (in millions) 484.00 391.00 386.00 374.19 390.93 398.62 429.71 457.23 471.52 Percent Change in Revenue -3.97% -19.21% -1.28% -3.06% 4.47% 1.97% 7.80% 6.40% 3.13% Loads 449,366 386,875 370,555 359,220 375,287 382,669 412,517 438,931 452,651 Percent Change in Loads 1.01% -13.91% -4.22% ‐3.06% 4.47% 1.97% 7.80% 6.40% 3.13% ICS Revenue (in millions) 456.00 537.00 718.00 816.42 924.70 1,016.89 1,122.51 1,206.70 1,262.29 Percent Change in Revenue 28.09% 17.76% 33.71% 13.71% 13.26% 9.97% 10.39% 7.50% 4.61% Loads 326,574 388,987 453,410 515,573 583,937 642,214 708,940 762,111 797,244 Percent Change in Loads 28.79% 19.11% 16.56% 13.71% 13.26% 9.98% 10.39% 7.50% 4.61% JBI (in millions) 3,071 3,456 3,687 4,150 4,608 5,003 5,411 5,826 6,071 DCS (in millions) 1,080 1,231 1,394 1,463 1,594 1,717 1,807 1,937 2,019 ICS (in millions) 456 537 718 816 925 1,017 1,123 1,207 1,262 JBT (in millions) 484 391 386 374 391 399 430 457 472 Total 5,091.00 5,615.00 6,185.00 6,803.50 7,517.87 8,135.08 8,769.62 9,427.34 9,823.29 J.B. Hunt Transport Services, Inc. Income Statement

Fiscal Years Ending Dec. 31 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E Income Statement Full Statement Summary Sales 5,055.00 5,585.00 6,165.00 6,803.50 7,517.87 8,135.08 8,769.62 9,427.34 9,823.29 Operating Expenses: COGS excluding D&A 4,221.48 4,657.57 5,129.20 5,670.63 6,291.07 6,818.72 7,350.58 7,901.87 8,164.00 Rents and Purchased Transportation 2,485.64 2,805.57 3,085.28 3,460.60 3,807.05 4,084.63 4,403.23 4,733.47 4,862.53 Salaries, wages and employee benefits 1,037.53 1,138.21 1,290.40 1,428.20 1,605.06 1,729.52 1,864.42 2,004.25 2,088.43 Fuel and Fuel Taxes 465.87 455.93 453.92 462.64 526.25 622.90 671.49 721.85 752.17 Operating Supplies and Expenses 178.61 202.70 218.54 242.83 268.33 290.36 313.00 336.48 350.61 Insurance Claims 53.83 55.16 81.06 76.37 84.38 91.31 98.44 105.82 110.26 Depreciation & Amortization Expense 229.20 253.40 294.50 337.26 386.22 442.30 506.51 580.05 664.26 Gross Income 604.30 673.60 741.70 795.61 840.57 874.07 912.53 945.42 995.03 SG&A Expense 44.70 69.60 77.40 76.24 75.11 73.99 72.88 71.79 70.72 Other Operating Expense 29.50 32.30 38.80 35.75 32.94 30.35 27.97 25.77 23.74 EBIT (Operating Income) 530.20 571.70 625.50 683.62 732.52 769.73 811.69 847.86 900.56 Nonoperating Income ‐ Net 0.00 5.07 6.09 7.08 8.02 7.06 6.06 7.02 7.04 Nonoperating Interest Income 0.00 0.07 0.09 0.00 0.31 0.21 0.33 0.26 0.28 Other Income (Expense) 0.00 5.00 6.00 7.00 8.00 7.00 8.00 7.00 7.00 Interest Expense 25.56 23.21 27.03 32.67 34.95 35.10 37.95 43.56 47.30 Pretax Income 504.60 553.60 604.60 636.86 681.25 720.37 759.35 790.02 838.94 Income Taxes 194.30 211.20 229.80 251.05 268.55 283.97 299.33 311.43 330.71 Income Taxes ‐ Current Domestic 173.20 163.10 150.50 161.73 173.01 182.94 192.84 200.63 213.05 Income Taxes ‐ Deferred Domestic 21.05 48.08 79.34 89.31 95.54 101.02 106.49 110.79 117.65 Consolidated Net Income 310.40 342.40 374.80 385.81 412.70 436.40 460.01 478.59 508.23 Net Income 310.40 342.40 374.80 385.81 412.70 436.40 460.01 478.59 508.23 Net Income available to Common 310.40 342.40 374.80 385.81 412.70 436.40 460.01 478.59 508.23 EPS 2.59 2.87 3.16 3.30 3.56 3.79 4.01 4.19 4.49 Total Shares Outstanding 117.50 117.20 116.60 115.48 114.78 114.74 113.75 112.82 111.95 Dividends per Share 0.56 0.45 0.80 0.82 0.89 0.95 1.00 1.05 1.12 J.B. Hunt Transport Services, Inc. Balance Sheet

Fiscal Years Ending Dec. 31 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E Balance Sheet Full StatementSummary Assets Cash & Short‐Term Investments 5.59 5.83 5.96 309.41 507.11 820.76 1,257.01 1,649.18 2,153.12 Accounts Receivables, Net 466.00 568.50 653.77 655.90 724.77 784.28 845.45 908.86 947.03 Other Receivables 2.40 7.50 79.80 29.19 32.25 34.90 37.62 40.44 42.14 Inventories 23.07 26.25 27.74 30.89 34.13 36.93 39.81 42.80 44.60 Prepaid Expenses 50.11 64.19 78.53 114.76 126.81 137.22 147.93 159.02 165.70 Miscellaneous Current Assets 7.36 7.92 34.27 36.69 40.55 43.88 47.30 50.85 52.98 Total Current Assets 554.50 680.20 880.10 1,176.85 1,465.63 1,857.98 2,375.12 2,851.15 3,405.57 Net Property, Plant & Equipment 1,885.00 2,112.00 2,483.00 2,785.07 3,105.53 3,427.93 3,745.77 4,051.89 4,311.02 Property, Plant & Equipment ‐ Gross 2,905.00 3,260.00 3,720.00 4,359.53 5,066.21 5,830.91 6,655.25 7,541.42 8,464.81 Accumulated Depreciation 1,019.20 1,147.60 1,237.20 1,574.46 1,960.68 2,402.97 2,909.48 3,489.53 4,153.79 Total Investments and Advances 11.20 12.70 13.50 15.09 16.86 18.85 21.07 23.55 26.32 Long‐Term Note Receivable 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Other Assets 13.44 14.30 20.40 15.32 16.92 18.31 19.74 21.22 22.11 Total Assets 2,465.00 2,819.00 3,397.00 3,992.33 4,604.95 5,323.07 6,161.70 6,947.81 7,765.02 Liabilities & Shareholders' Equity ST Debt & Curr. Portion LT Debt 100.00 250.00 250.00 250.00 183.00 183.00 250.00 250.00 250.00 Accounts Payable 266.70 305.50 325.80 365.04 403.37 436.49 470.53 505.82 527.07 Income Tax Payable 0.75 2.49 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Other Current Liabilities 135.30 154.30 195.20 170.09 187.95 203.38 219.24 235.68 245.58 Total Current Liabilities 502.80 712.30 771.10 785.13 774.32 822.86 939.77 991.51 1,022.65 Long‐Term Debt 585.30 458.40 683.50 748.43 819.75 901.29 994.64 1,101.47 1,223.74 Provision for Risks & Charges 11.20 12.70 13.50 14.55 15.69 16.91 18.23 19.65 21.18 Deferred Tax Liabilities 531.60 578.00 678.40 756.21 842.95 939.64 1,047.41 1,167.55 1,301.47 Other Liabilities 41.85 45.57 46.06 48.20 50.44 52.78 55.23 57.80 60.48 Total Liabilities 1,673.00 1,807.00 2,193.00 2,352.52 2,503.14 2,733.48 3,055.28 3,337.97 3,629.53 Common Stock 208.77 228.27 249.31 504.18 765.45 1,035.47 1,316.16 1,569.03 1,821.91 Retained Earnings 1,985.00 2,275.00 2,556.00 2,846.62 3,157.36 3,485.12 3,831.25 4,191.81 4,574.59 Cumulative Translation Adjustment/Unrealized For. Exch. Gain 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Other Appropriated Reserves 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Treasury Stock (1,402.00) (1,491.00) (1,601.00) (1,711.00) (1,821.00) (1,931.00) (2,041.00) (2,151.00) (2,261.00) Total Shareholders' Equity 791.90 1,012.50 1,204.50 1,639.80 2,101.81 2,589.59 3,106.42 3,609.84 4,135.50 Total Equity 791.90 1,012.50 1,204.50 1,639.80 2,101.81 2,589.59 3,106.42 3,609.84 4,135.50 Total Liabilities & Shareholders' Equity 2,465.00 2,819.00 3,397.00 3,992.33 4,604.95 5,323.07 6,161.70 6,947.81 7,765.02 J.B. Hunt Transport Services, Inc. Cash Flow Statement

Fiscal Years Ending Dec. 31 2012 2013 2014 Operating Activities Net Income 310.40 342.40 374.80 Depreciation, Depletion & Amortization 229.20 253.40 294.50 Deferred Taxes & Investment Tax Credit 0.00 48.08 79.34 Other Funds 33.67 27.02 28.99 Funds from Operations 573.20 670.90 777.63 Changes in Working Capital (25.14) (96.51) (130.84) Receivables (42.66) (102.51) (157.57) Accounts Payable 15.10 11.53 15.28 Other Accruals 7.25 23.11 41.23 Other Assets/Liabilities (4.83) (28.64) (29.79) Net Operating Cash Flow 548.00 574.40 646.80 Investing Activities Capital Expenditures (439.50) (493.40) (808.57) Capital Expenditures (Fixed Assets) (439.50) (493.40) (808.57) Capital Expenditures (Other Assets) 0.00 0.00 0.00 Sale of Fixed Assets & Businesses 69.82 50.93 148.86 Other Funds 0.09 (0.04) 0.03 Other Uses 0.00 (0.04) 0.00 Other Sources 0.09 0.00 0.03 Net Investing Cash Flow (369.60) (442.50) (659.70) Financing Activities Cash Dividends Paid (83.43) (52.81) (93.60) Change in Capital Stock (52.40) (123.30) (141.10) Repurchase of Common & Preferred Stk. (52.40) (132.70) (148.40) Sale of Common & Preferred Stock 0.00 9.40 7.32 Issuance of Long‐Term Debt 1,605.70 1,933.80 231.10 Reduction in Long‐Term Debt (1,668.20) (1,911.20) (2,360.70) Other Funds 20.09 21.95 16.65 Net Financing Cash Flow (178.30) (131.60) 13.03 Net Change in Cash 0.14 0.24 0.13 J.B. Hunt Transport Services, Inc. Cash Flow Statement

Fiscal Years Ending Dec. 31 2015E 2016E 2017E 2018E 2019E 2020E Operating Activities Net Income 385.81 412.70 436.40 460.01 478.59 508.23 Depreciation, Depletion & Amortization 337.26 386.22 442.30 506.51 580.05 664.26 Deferred Taxes 77.81 86.74 96.69 107.78 120.14 133.92 Funds from Operations 800.88 885.66 975.38 1,074.30 1,178.78 1,306.41 Changes in Working Capital Receivables 48.48 (71.93) (62.15) (63.90) (66.23) (39.87) Inventories (3.15) (3.24) (2.80) (2.88) (2.99) (1.80) Prepaid Expenses (36.23) (12.05) (10.41) (10.70) (11.09) (6.68) Misc. Current Assets (2.42) (3.85) (3.33) (3.42) (3.55) (2.14) Accounts Payable 39.24 38.33 33.12 34.05 35.29 21.24 Income Taxes Payable 0.00 0.00 0.00 0.00 0.00 0.00 Other Current Liabilities (25.11) 17.86 15.43 15.86 16.44 9.90 Net Operating Cash Flow 821.68 850.77 945.23 1,043.31 1,146.65 1,287.07 Investing Activities Capital Expenditures (639.53) (706.68) (764.70) (824.34) (886.17) (923.39) Change in LT Investments (1.59) (1.78) (1.99) (2.22) (2.48) (2.77) Change in other assets 5.08 (1.61) (1.39) (1.43) (1.48) (0.89) Net Investing Cash Flow (636.03) (710.06) (768.07) (827.99) (890.13) (927.05) Financing Activities Cash Dividends Paid (95.19) (101.96) (108.64) (113.88) (118.04) (125.44) Change in provision for risks 1.05 1.13 1.22 1.32 1.42 1.53 Change in other liabilities 2.14 2.24 2.34 2.45 2.57 2.68 Change in Current Portion LT Debt 0.00 (67.00) 0.00 67.00 0.00 0.00 Repurchase of Common & Preferred Stk. (110.00) (110.00) (110.00) (110.00) (110.00) (110.00) Proceeds from Issuance of Common Stock 254.87 261.27 270.02 280.69 252.87 252.87 Issuance of Long‐Term Debt 64.93 71.32 81.54 93.35 106.83 122.27 Net Financing Cash Flow 117.80 57.00 136.49 220.93 135.65 143.92 Net Change in Cash 303.45 197.70 313.65 436.24 392.17 503.94 Beg Cash 5.96 309.41 507.11 820.76 1,257.01 1,649.18 End Cash 309.41 507.11 820.76 1,257.01 1,649.18 2,153.12 J.B. Hunt Transport Services, Inc. Common Size Income Statement

Fiscal Years Ending Dec. 31 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E Sales 5,055.00 5,585.00 6,165.00 6,803.50 7,517.87 8,135.08 8,769.62 9,427.34 9,823.29 COGS excluding D&A 83.51% 83.39% 83.20% 83.35% 83.68% 83.82% 83.82% 83.82% 83.11% Rents and Purchased Transportation 49.17% 50.23% 50.05% 50.87% 50.64% 50.21% 50.21% 50.21% 49.50% Salaries, wages and employee benefits 20.52% 20.38% 20.93% 20.99% 21.35% 21.26% 21.26% 21.26% 21.26% Fuel and Fuel Taxes 9.22% 8.16% 7.36% 6.80% 7.00% 7.66% 7.66% 7.66% 7.66% Operating Supplies and Expenses 3.53% 3.63% 3.54% 3.57% 3.57% 3.57% 3.57% 3.57% 3.57% Insurance Claims 1.06% 0.99% 1.31% 1.12% 1.12% 1.12% 1.12% 1.12% 1.12% Depreciation & Amortization Expense 4.53% 4.54% 4.78% 4.96% 5.14% 5.44% 5.78% 6.15% 6.76% Gross Income 11.95% 12.06% 12.03% 11.69% 11.18% 10.74% 10.41% 10.03% 10.13% SG&A Expense 0.88% 1.25% 1.26% 1.12% 1.00% 0.91% 0.83% 0.76% 0.72% Other Operating Expense 0.58% 0.58% 0.63% 0.53% 0.44% 0.37% 0.32% 0.27% 0.24% EBIT (Operating Income) 10.49% 10.24% 10.15% 10.05% 9.74% 9.46% 9.26% 8.99% 9.17% Nonoperating Income ‐ Net 0.00% 0.09% 0.10% 0.10% 0.11% 0.09% 0.07% 0.07% 0.07% Other Income (Expense) 0.00% 0.09% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Interest Expense 0.51% 0.42% 0.10% 0.10% 0.11% 0.09% 0.09% 0.07% 0.07% Unusual Expense ‐ Net 0.00% 0.00% 0.44% 0.48% 0.46% 0.43% 0.43% 0.46% 0.48% Pretax Income 9.98% 9.91% 9.81% 9.36% 9.06% 8.86% 8.66% 8.38% 8.54% Income Taxes 3.84% 3.78% 9.81% 9.36% 9.06% 8.86% 8.66% 8.38% 8.54% Income Taxes ‐ Current Domestic 3.43% 2.92% 3.73% 3.69% 3.57% 3.49% 3.41% 3.30% 3.37% Income Taxes ‐ Deferred Domestic 0.42% 0.86% 2.44% 2.38% 2.30% 2.25% 2.20% 2.13% 2.17% Consolidated Net Income 6.14% 6.13% 1.29% 1.31% 1.27% 1.24% 1.21% 1.18% 1.20% Net Income 6.14% 6.13% 6.08% 5.67% 5.49% 5.36% 5.25% 5.08% 5.17% Net Income available to Common 6.14% 6.13% 6.08% 5.67% 5.49% 5.36% 5.25% 5.08% 5.17% EPS 0.05% 0.05% 6.08% 5.67% 5.49% 5.36% 5.25% 5.08% 5.17% Total Shares Outstanding 2.32% 2.10% 1.87% 1.69% 1.53% 1.40% 1.29% 1.19% 0.00% Dividends per Share 0.01% 0.01% 0.01% 0.01% 0.02% 0.02% 0.02% 0.02% 0.02% J.B. Hunt Transport Services, Inc. Common Size Balance Sheet

Fiscal Years Ending Dec. 31 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E Assets Cash & Short‐Term Investments 0.11% 0.10% 0.10% 4.55% 6.75% 10.09% 14.33% 17.49% 21.92% Accounts Receivables, Net 9.22% 10.18% 10.60% 9.64% 9.64% 9.64% 9.64% 9.64% 9.64% Other Receivables 0.05% 0.13% 1.29% 0.43% 0.43% 0.43% 0.43% 0.43% 0.43% Inventories 0.46% 0.47% 0.45% 0.45% 0.45% 0.45% 0.45% 0.45% 0.45% Prepaid Expenses 0.99% 1.15% 1.27% 1.69% 1.69% 1.69% 1.69% 1.69% 1.69% Miscellaneous Current Assets 0.15% 0.14% 0.56% 0.54% 0.54% 0.54% 0.54% 0.54% 0.54% Total Current Assets 10.97% 12.18% 14.28% 17.30% 19.50% 22.84% 27.08% 30.24% 34.67% Net Property, Plant & Equipment 37.29% 37.82% 40.28% 40.94% 41.31% 42.14% 42.71% 42.98% 43.89% Property, Plant & Equipment ‐ Gross 57.47% 58.37% 60.34% 64.08% 67.39% 71.68% 75.89% 80.00% 86.17% Accumulated Depreciation 20.16% 20.55% 20.07% 23.14% 26.08% 29.54% 33.18% 37.02% 42.29% Total Investments and Advances 0.22% 0.23% 0.22% 0.22% 0.22% 0.23% 0.24% 0.25% 0.27% Long‐Term Note Receivable 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Other Assets 0.27% 0.26% 0.33% 0.23% 0.23% 0.23% 0.23% 0.23% 0.23% Total Assets 48.76% 50.47% 55.10% 58.68% 61.25% 65.43% 70.26% 73.70% 79.05% Liabilities & Shareholders' Equity ST Debt & Curr. Portion LT Debt 1.98% 4.48% 4.06% 3.67% 2.43% 2.25% 2.85% 2.65% 2.54% Accounts Payable 5.28% 5.47% 5.28% 5.37% 5.37% 5.37% 5.37% 5.37% 5.37% Income Tax Payable 0.01% 0.04% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Other Current Liabilities 2.68% 2.76% 3.17% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% Total Current Liabilities 9.95% 12.75% 12.51% 11.54% 10.30% 10.11% 10.72% 10.52% 10.41% Long‐Term Debt 11.58% 8.21% 11.09% 11.00% 10.90% 11.08% 11.34% 11.68% 12.46% Provision for Risks & Charges 0.22% 0.23% 0.22% 0.21% 0.21% 0.21% 0.21% 0.21% 0.22% Deferred Tax Liabilities 10.52% 10.35% 11.00% 11.12% 11.21% 11.55% 11.94% 12.38% 13.25% Other Liabilities 0.83% 0.82% 0.75% 0.71% 0.67% 0.65% 0.63% 0.61% 0.62% Total Liabilities 33.10% 32.35% 35.57% 34.58% 33.30% 33.60% 34.84% 35.41% 36.95% Common Stock 4.13% 4.09% 4.04% 7.41% 10.18% 12.73% 15.01% 16.64% 18.55% Retained Earnings 39.27% 40.73% 41.46% 41.84% 42.00% 42.84% 43.69% 44.46% 46.57% Cumulative Translation Adjustment/Unrealized For. Exch. Gain 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Other Appropriated Reserves 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Treasury Stock ‐27.73% ‐26.70% ‐25.97% ‐25.15% ‐24.22% ‐23.74% ‐23.27% ‐22.82% ‐23.02% Total Shareholders' Equity 15.66% 18.12% 19.53% 24.10% 27.96% 31.83% 35.42% 38.29% 42.10% J.B. Hunt Transport Services, Inc. Value Driver Estimation

Fiscal Years Ending Dec. 31 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E NOPLAT CALCULATION Sales 5,055.00 5,585.00 6,165.00 6,803.50 7,517.87 8,135.08 8,769.62 9,427.34 9,823.29 Depreciation & Amortization Expense 229.20 253.40 294.50 337.26 386.22 442.30 506.51 580.05 664.26 COGS excluding D&A 4,221.48 4,657.57 5,129.20 5,670.63 6,291.07 6,818.72 7,350.58 7,901.87 8,164.00 SG&A Expense 44.70 69.60 77.40 76.24 75.11 73.99 72.88 71.79 70.72 **Beg. EBITA 530.20 571.70 625.50 683.62 732.52 769.73 811.69 847.86 900.56 +' Implied Interest on PV of Operating Leases 0.64 0.90 0.76 0.85 0.95 1.05 1.15 1.24 1.32 End. EBITA 530.84 572.60 626.26 684.47 733.48 770.79 812.83 849.11 901.88 Less: Adjusted Taxes Total Income Tax Provision(Income Tax Expense) (194.30) (211.20) (229.80) (251.05) (268.55) (283.97) (299.33) (311.43) (330.71) +' Tax Shield on Interst Expense (int. expense*tax rate) (10.08) (9.15) (10.66) (12.88) (13.78) (13.83) (14.96) (17.17) (18.65) +' Tax shield on lease interest 0.25 0.35 0.30 0.34 0.38 0.41 0.45 0.49 0.52 -' Tax on Interest or Investment Income (int. income*tax rate) 0.00 (1.97) (2.37) (2.76) (3.15) (2.76) (3.15) (2.76) (2.76) -' Tax on Any Non-Operating Income 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 =' Total Adjusted Taxes (204.12) (221.97) (242.52) (266.35) (285.10) (300.15) (317.00) (330.87) (351.59) Plus: Change in Deferred Taxes Net Deferred Tax Liability 14.90 46.40 100.40 77.81 86.74 96.69 107.78 120.14 133.92 ='Net Change in Deferred Tax Liabilities (116.80) 31.50 54.00 (22.59) 8.93 9.95 11.09 12.36 13.78 NOPLAT = 209.92 382.13 437.74 395.53 457.30 480.58 506.93 530.60 564.07

INVESTED CAPITAL CALCULATION Operating Current Assests: Normal Cash 101.10 111.70 123.30 136.07 150.36 162.70 175.39 188.55 196.47 +' Accounts Receivable 466.00 568.50 653.77 655.90 724.77 784.28 845.45 908.86 947.03 +'Inventory 23.07 26.25 27.74 30.89 34.13 36.93 39.81 42.80 44.60 +'Prepaid Expenses 50.11 64.19 78.53 114.76 126.81 137.22 147.93 159.02 165.70 +' Other Current Operating Assets 7.36 7.92 34.27 36.69 40.55 43.88 47.30 50.85 52.98 Total Operating Current Assets 647.64 778.56 917.61 974.32 1,076.62 1,165.01 1,255.88 1,350.08 1,406.78 Less: Non-Interest Bearing Current Liabilities: Accounts Payable 266.70 305.50 325.80 365.04 403.37 436.49 470.53 505.82 527.07 Accrued Expenses 135.30 154.30 195.20 170.09 187.95 203.38 219.24 235.68 245.58 Income taxes payable 0.75 2.49 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total Non-Interest Bearing Current Liabilities 402.75 462.29 521.00 535.13 591.32 639.86 689.77 741.51 772.65 Net Working Capital 244.89 316.27 396.61 439.19 485.31 525.15 566.11 608.57 634.13 Plus: Net PP&E 1,885.00 2,112.00 2,483.00 2,785.07 3,105.53 3,427.93 3,745.77 4,051.89 4,311.02 Gross PP&E 2,905.00 3,260.00 3,720.00 4,359.53 5,066.21 5,830.91 6,655.25 7,541.42 8,464.81 -'Accumulated Depreciation 1,019.20 1,147.60 1,237.20 1,574.46 1,960.68 2,402.97 2,909.48 3,489.53 4,153.79 Net PPE 1,885.80 2,112.40 2,482.80 2,785.07 3,105.53 3,427.93 3,745.77 4,051.89 4,311.02 Plus: Net Other Operating Assests Capitalized PV of Operating Leases 14.64 15.18 18.97 21.28 23.73 26.20 28.62 30.96 32.94 Net Other operating Assets 14.64 15.18 18.97 21.28 23.73 26.20 28.62 30.96 32.94 INVESTED CAPITAL 2,145.33 2,443.85 2,898.38 3,245.55 3,614.57 3,979.28 4,340.50 4,691.42 4,978.09

ROIC CALCULATION NOPLAT 209.92 382.13 437.74 395.53 457.30 480.58 506.93 530.60 564.07 Beginning Invested Capital 1,941.62 2,145.33 2,443.85 2,898.38 3,245.55 3,614.57 3,979.28 4,340.50 4,691.42 ROIC 10.812% 17.812% 17.912% 13.647% 14.090% 13.296% 12.739% 12.224% 12.023%

FCF Calculation NOPLAT 209.92 382.13 437.74 395.53 457.30 480.58 506.93 530.60 564.07 Change in Invested Captial 203.71 298.51 454.54 347.16 369.02 364.71 361.23 350.92 286.67 FCF 6.21 83.62 (16.80) 48.37 88.28 115.87 145.70 179.68 277.40

EP CALCULATION Beginning Invested Capital 1,941.62 2,145.33 2,443.85 2,898.38 3,245.55 3,614.57 3,979.28 4,340.50 4,691.42 ROIC 10.81% 17.81% 17.91% 13.65% 14.09% 13.30% 12.74% 12.22% 12.02% WACC 6.48% 6.48% 6.48% 6.48% 6.48% 6.48% 6.48% 6.48% 6.48% EP 84.20 243.21 279.50 207.85 247.14 246.54 249.26 249.54 260.29 J.B. Hunt Transport Services, Inc. Weighted Average Cost of Capital (WACC) Estimation

Beta 0.935 Risk Premium 4.62% Risk Free Rate 2.522% Cost of Equity 6.98% Pre-Tax Cost of Debt (2024) 3.04% Tax Rate 39.42% After-Tax Cost of Debt 1.84% Cost of Preferred 1.00% Debt Revolving Debt 183.00 Short term Debt 250.00 Long Term Debt 683.50 PV of Operating Leases 25.02 Total Debt 1,141.52 Equity Stock Shares 116.6 Price Per Share $90.18 Market Cap 10514.99 MV of the Company 11,656.51 MV Weight of Debt 9.79% MV Weight of Equity 90.21% MV Weight of Prefered 0.00% WACC 6.48% J.B. Hunt Transport Services, Inc. Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs: CV Growth 4.20%Beg. Fiscal Year Current Date CV ROIC 12.02% 2% of sales1/1/2015 4/17/2015 WACC 6.48% "normal cash" 123.3 Cost of Equity 6.98%

Fiscal Years Ending Dec. 31 2014 2015E 2016E 2017E 2018E 2019E 2020E 2021E FCF 48.37 88.28 115.87 145.70 179.68 277.40

DCF Model WACC 6.48% CF to Discount 48.37 88.28 115.87 145.70 179.68 16,131.95 NOPLAT 564.07 Periods to Discount 1 23455 PV (CF) 45.42 77.87 95.99 113.37 131.30 11,788.15

Value Of Operating Assets 12,252.09 Plus: Excess Cash 186.11 Less: Revolving Debt 183.00 Less: Short‐term debt 250.00 Less: Long‐term debt 683.50 Less: PV of Operating Leases 25.02 Less: Underfunded Pension 0.00 Less: ESOP 252.87 Value of Equity 10,671.59 Number of Shares Outstanding 116.60 Intrinsic Value of Stock 91.523

Fraction of Fiscal Year Elapsed 0.29 Adjusted Stock Price 93.08

EP Model WACC 6.48% EP to discount 207.85 247.14 246.54 249.26 249.54 11,440.53 Periods to discount 1.00 2.00 3.00 4.00 5.00 5.00 Beginning Invested Capital 2,898.38 PV (CF) 195.21 218.00 204.24 193.94 182.35 8,359.97

Value of Operating Assets 12,252.09 Plus: Excess Cash 186.11 Less: Revolving Debt 183.00 Less: Short‐term Debt 250.00 Less: Long‐term Debt 683.50 Less: PV operating leases 25.02 Less: Underfunded Pension 0.00 Less: ESOP 252.87 Value of Equity 10,671.59 Number of Shares Outstanding 116.60 Intrinsic Value of Stock 91.52

Fraction of Fiscal Year Elapsed 0.29 Adjusted Stock Price 93.08

For Discounting: Number of Periods 2 3 4 5 6 7 8

Today 5/3/2015 Next FYE 12/31/2011 Last FYE 12/31/2010 Days in FY 365 Days to FYE 1,584 Elapsed Fraction 4.340 J.B. Hunt Transport Services, Inc. Dividend Discount Model (DDM) or Fundamental P/E Valuation Model Beg. Fiscal Year Current Date 1/1/2015 4/5/2015 Fiscal Years Ending Dec. 31 2014 2015E 2016E 2017E 2018E 2019E 2020E 2021E

EPS$ 3.16 $ 3.30 $ 3.56 $ 3.79 $ 4.01 $ 4.19 $ 4.49

Key Assumptions CV growth 4.20% CV ROE 12.29% Cost of Equity 6.98%

Future Cash Flows P/E Multiple (CV Year) 23.68 EPS (CV Year) 4.49 Future Stock Price 106.23 Dividends Per Share 0.80 0.82 0.89 0.95 1.00 1.05 1.12 Future Cash Flows period 0123455 Discounted Cash Flows 0.80 0.77 0.78 0.77 0.76 0.75 75.81

Intrinsic Value $ 79.64 Fraction of Fiscal Year Elapsed 0.26 Adjusted Stock Price $80.84 J.B. Hunt Transport Services, Inc. Relative Valuation Models EPS EPS Est. 5yr Profit Operating Ticker Company Price 2015E 2016E P/E 15 P/E 16 EPS gr. PEG 15 PEG 16 Margin Margin LSTR Landstar System Inc. $64.09 $3.45 $3.88 18.6 16.5 17.32 1.07 0.95 4.36% 6.98% SWFT Swift Transportation Co $25.50 $1.72 $1.97 14.8 12.9 17.11 0.87 0.76 3.75% 8.02% ODFL Old Dominion Freight Line Inc. $72.78 $3.65 $4.25 19.9 17.1 20.84 0.96 0.82 9.60% 15.80% KNX Knight Transportation Inc. $31.69 $1.44 $1.65 22.0 19.2 18.25 1.21 1.05 9.33% 13.27% WERN Werner Enterprises Inc. $30.50 $1.61 $1.81 18.9 16.9 14.0 1.36 1.21 4.61% 6.58% HTLD Heartland Express Inc $22.90 $1.07 $1.22 21.4 18.8 14.3 1.49 1.31 9.74% 11.28% CNW Con‐Way Inc. $42.04 $2.78 $3.29 15.1 12.8 21.0 0.72 0.61 2.36% 4.45% FWRD Forward Air Corp $50.75 $2.42 $2.83 21.0 17.9 13.9 1.51 1.29 7.83% 12.41% Average 19.0 16.5 1.1 1.0

JBHT J.B. Hunt Transport Services, Inc. $90.18 $3.30 $3.56 27.3 25.4 6.02 4.5 4.2 6.08% 10.24%

Implied Value: Relative P/E (EPS15) $ 62.62 Relative P/E (EPS16)$ 58.74 PEG Ratio (EPS15)$ 22.78 PEG Ratio (EPS16)$ 21.39 Risk Free Rate Vs Beta WACC Vs. Cost of Equity Beta 93.08 0.185 0.435 0.685 0.935 1.185 1.435 1.685 1.935 Cost of Equity 1.77% 565.93 287.57 188.22 137.25 106.25 85.42 70.48 59.23 93.08 6.23% 6.48% 6.73% 6.98% 7.23% 7.48% 7.73% 7.98% 2.02% 515.39 255.33 165.03 119.20 91.50 72.97 59.70 49.75 5.73% 148.41 148.52 148.62 148.72 148.82 148.92 149.02 149.13 2.27% 472.85 229.18 146.46 104.85 79.82 63.13 51.21 42.29 5.98% 124.59 124.68 124.76 124.85 124.93 125.02 125.10 125.19 Risk Free Rate 2.52% 436.55 207.54 131.26 93.16 70.35 55.17 44.36 36.28 6.23% 106.65 106.72 106.79 106.87 106.94 107.01 107.08 107.16 2.77% 405.22 189.35 118.59 83.47 62.51 48.60 38.71 31.33 WACC 6.48% 92.65 92.71 92.77 92.84 92.90 92.96 93.03 93.09 3.02% 377.90 173.83 107.86 75.30 55.92 43.09 33.98 27.19 6.73% 81.42 81.48 81.54 81.59 81.65 81.70 81.76 81.81 3.27% 353.87 160.45 98.67 68.32 50.30 38.40 29.96 23.67 6.98% 72.23 72.28 72.33 72.38 72.43 72.48 72.52 72.57 3.52% 332.56 148.78 90.70 62.28 45.46 34.36 26.50 20.65 7.23% 64.56 64.60 64.64 64.69 64.73 64.78 64.82 64.87 7.48% 58.06 58.10 58.14 58.18 58.22 58.26 58.30 58.34

Equity Risk Premium Vs Marginal Tax Rate CV Growth Vs. Cost of Debt Cost of Debt Marginal Tax Rate 93.08 2.29% 2.54% 2.79% 3.04% 3.29% 3.54% 3.79% 4.04% 93.08 38.67% 38.92% 39.17% 39.42% 39.67% 39.92% 40.17% 40.42% 3.45% 74.80 74.35 73.91 73.48 73.05 72.62 72.20 71.78 3.87% 141.37 141.39 141.41 141.42 141.44 141.46 141.48 141.49 CV Growth 3.70% 80.36 79.85 79.34 78.84 78.34 77.85 77.36 76.88 4.12% 121.29 121.30 121.31 121.31 121.32 121.33 121.33 121.34 3.95% 87.04 86.44 85.84 85.26 84.67 84.10 83.53 82.97 Equity Risk Premium 4.37% 105.64 105.64 105.64 105.64 105.64 105.64 105.64 105.64 4.20% 95.22 94.50 93.79 93.08 92.39 91.70 91.03 90.36 4.62% 93.09 93.09 93.08 93.08 93.08 93.07 93.07 93.07 4.45% 105.47 104.58 103.71 102.85 102.00 101.16 100.34 99.52 4.87% 82.81 82.81 82.80 82.79 82.79 82.78 82.77 82.77 4.70% 118.68 117.55 116.45 115.36 114.29 113.24 112.20 111.18 5.12% 74.24 74.23 74.22 74.22 74.21 74.20 74.19 74.18 4.95% 136.34 134.86 133.40 131.97 130.57 129.20 127.85 126.52 5.37% 66.98 66.97 66.96 66.96 66.95 66.94 66.93 66.92 5.20% 161.19 159.11 157.08 155.10 153.16 151.27 149.42 147.61 5.62% 60.76 60.75 60.74 60.73 60.72 60.71 60.70 60.69 J.B. Hunt Transport Services, Inc. Key Management Ratios

Fiscal Years Ending Dec. 31 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E 2021E

Liquidity Ratios Current Ratio Current Assets / Current Liabilities 1.10 0.95 1.14 1.50 1.89 2.26 2.53 2.88 3.33 Quick Ratio (Current Assets - Inventories) / Current Liabilities 1.06 0.92 1.11 1.46 1.85 2.21 2.48 2.83 3.29 Net Working Capital Current Assests - Current Liabilities $ 51.70 $ (32.10) $ 109.00 $ 391.72 $ 691.31 $ 1,035.11 $ 1,435.35 $ 1,859.65 $ 2,382.92

Activity or Asset‐Management Ratios Total Asset Turnover Total Revenue / Total Assets 205.07% 198.12% 181.48% 170.41% 163.26% 152.83% 142.32% 135.69% 126.51% Receivables Turnover Net Income / Accounts Receivable 66.61% 60.23% 57.33% 58.82% 56.94% 55.64% 54.41% 52.66% 53.67% Fixed Asset Turnover Total Revenue / Net PPE 268.17% 264.44% 248.29% 244.28% 242.08% 237.32% 234.12% 232.67% 227.86%

Financial Leverage Ratios Debt to Equity (Short Term + Long Term Debt) / Total Equity 86.54% 69.97% 77.50% 60.89% 47.71% 41.87% 40.07% 37.44% 35.64% Debt ratio (Short Term + Long Term Debt) / Total Assets 27.80% 25.13% 27.48% 25.01% 21.78% 20.37% 20.20% 19.45% 18.98% Equity ratio Total Equity / Total Assets 32.13% 35.92% 35.46% 41.07% 45.64% 48.65% 50.41% 51.96% 53.26% Capitalization ratio (Total Debt) / (Total Debt + Total Equity) 46.39% 41.16% 43.66% 37.84% 32.30% 29.51% 28.61% 27.24% 26.27%

Profitability Ratios Return on Assets Net Income / Total Assets 12.59% 12.15% 11.03% 9.66% 8.96% 8.20% 7.47% 6.89% 6.55% Return on Equity Net Income / Total Equity 39.20% 33.82% 31.12% 23.53% 19.64% 16.85% 14.81% 13.26% 12.29% Net Profit Margin Net Income / Total Revenue 6.14% 6.13% 6.08% 5.67% 5.49% 5.36% 5.25% 5.08% 5.17% Operating Margin Operating Income / Revenue 10.49% 10.24% 10.15% 10.05% 9.74% 9.46% 9.26% 8.99% 9.17%

Payout Policy Ratios Return on Assets Dividends / Net Income 26.88% 15.42% 24.97% 24.67% 24.71% 24.89% 24.76% 24.66% 24.68% Present Value of Operating Lease Obligations (2014) Present Value of Operating Lease Obligations (2013) Present Value of Operating Lease Obligations (2012)

Operating Operating Operating Fiscal Years Ending Dec. 31 Leases Fiscal Years Ending Leases Fiscal Years Ending Leases 2015 10.5 2014 10.6 2013 7.8 2016 8.2 2015 8.7 2014 9.5 2017 5.4 2016 6.5 2015 3.5 2018 2.4 2017 4.2 2016 0.3 2019 0.05 2018 1.5 2017 0 Thereafter 0 Thereafter 0 Thereafter 0 Total Minimum Payments 26.55 Total Minimum Payments 31.5 Total Minimum Payments 21.1 Less: Interest 2 Less: Interest 2 Less: Interest #DIV/0! PV of Minimum Payments 25.0 PV of Minimum Payments 29.4 PV of Minimum Payments #DIV/0!

Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases

Pre‐Tax Cost of Debt 3.04% Pre‐Tax Cost of Debt 3.04% Pre‐Tax Cost of Debt 3.04% Number Years Implied by Year 6 Payment 1.0 Number Years Implied by Year 6 Payment 1.0 Number Years Implied by Year 6 Payment #DIV/0!

Lease PV Lease Lease PV Lease Lease PV Lease Year Commitment Payment Year Commitment Payment Year Commitment Payment 1 10.5 10.2 1 10.6 10.3 1 7.8 7.6 2 8.2 7.7 2 8.7 8.2 2 9.5 8.9 3 5.4 4.9 3 6.5 5.9 3 3.5 3.2 4 2.4 2.1 4 4.2 3.7 4 0.3 0.3 5 0.05 0.0 5 1.5 1.3 5 0 0.0 6 & beyond 0 0.0 6 & beyond 0 0.0 6 & beyond 0 #DIV/0! PV of Minimum Payments 25.0 PV of Minimum Payments 29.4 PV of Minimum Payments #DIV/0!

Present Value of Operating Lease Obligations (2011) Present Value of Operating Lease Obligations (2010) Present Value of Operating Lease Obligations (2009)

Operating Operating Operating Fiscal Years Ending Leases Fiscal Years Ending Leases Fiscal Years Ending Leases 2012 8 2011 7.3 2010 6.39 2013 5 2012 4.9 2011 4.51 2014 3.2 2013 2 2012 2.59 2015 2.3 2014 1 2013 0.99 2016 1.3 2015 0.4 2014 0.44 Thereafter 0.5 Thereafter 0.5 Thereafter 0.69 Total Minimum Payments 20.3 Total Minimum Payments 16.1 Total Minimum Payments 15.61 Less: Interest 1 Less: Interest 1 Less: Interest 1 PV of Minimum Payments 19 PV of Minimum Payments 15 PV of Minimum Payments 15

Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases

Pre‐Tax Cost of Debt 3.04% Pre‐Tax Cost of Debt 3.04% Pre‐Tax Cost of Debt 3.04% Number Years Implied by Year 6 Payment 1.0 Number Years Implied by Year 6 Payment 1.3 Number Years Implied by Year 6 Payment 1.6

Lease PV Lease Lease PV Lease Lease PV Lease Year Commitment Payment Year Commitment Payment Year Commitment Payment 1 8 7.8 1 7.3 7.1 1 6.39 6.2 2 5 4.7 2 4.9 4.6 2 4.51 4.2 3 3.2 2.9 3 2 1.8 3 2.59 2.4 4 2.3 2.0 4 1 0.9 4 0.99 0.9 5 1.3 1.1 5 0.4 0.3 5 0.44 0.4 6 & beyond 0.5 0.4 6 & beyond 0.4 0.4 6 & beyond 0.44 0.6 PV of Minimum Payments 19.0 PV of Minimum Payments 15.2 PV of Minimum Payments 14.6

Present Value of Operating Lease Obligations (2008) Present Value of Operating Lease Obligations (2007) Present Value of Operating Lease Obligations (2006) Present Value of Operating Lease Obligations (2005)

Operating Operating Operating Operating Fiscal Years Ending Leases Fiscal Years Ending Leases Fiscal Years Ending Leases Fiscal Years Ending Leases 2009 0 2008 4.28 2007 31.46 2006 57.95 2010 2.08 2009 1.58 2008 12.3 2007 36.35 2011 1.07 2010 0.75 2009 1.14 2008 14.02 2012 0.87 2011 0.57 2010 0.79 2009 1.11 2013 0.24 2012 0.12 2011 0.7 2010 0.77 Thereafter 0.07 Thereafter 0 Thereafter 1.2 Thereafter 1.88 Total Minimum Payments 4.33 Total Minimum Payments 7.3 Total Minimum Payments 47.59 Total Minimum Payments 112.08 Less: Interest 0 Less: Interest 0 Less: Interest 2 Less: Interest 6 PV of Minimum Payments 4 PV of Minimum Payments 7 PV of Minimum Payments 45 PV of Minimum Payments 106

Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases

Pre‐Tax Cost of Debt 3.04% Pre‐Tax Cost of Debt 3.04% Pre‐Tax Cost of Debt 3.04% Pre‐Tax Cost of Debt 3.04% Number Years Implied by Year 6 Payment 1.0 Number Years Implied by Year 6 Payment 1.0 Number Years Implied by Year 6 Payment 1.7 Number Years Implied by Year 6 Payment 2.4

Lease PV Lease Lease PV Lease Lease PV Lease Lease PV Lease Year Commitment Payment Year Commitment Payment Year Commitment Payment Year Commitment Payment 1 0 0.0 1 4.28 4.2 1 31.46 30.5 1 57.95 56.2 2 2.08 2.0 2 1.58 1.5 2 12.3 11.6 2 36.35 34.2 3 1.07 1.0 3 0.75 0.7 3 1.14 1.0 3 14.02 12.8 4 0.87 0.8 4 0.57 0.5 4 0.79 0.7 4 1.11 1.0 5 0.24 0.2 5 0.12 0.1 5 0.7 0.6 5 0.77 0.7 6 & beyond 0.07 0.1 6 & beyond 0 0.0 6 & beyond 0.7 1.0 6 & beyond 0.77 1.5 PV of Minimum Payments 4.0 PV of Minimum Payments 6.9 PV of Minimum Payments 45.5 PV of Minimum Payments 106.5 Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding

Number of Options Outstanding (shares): 98,000 Average Time to Maturity (years): 2.58 Expected Annual Number of Options Exercised: 37,984

Current Average Strike Price:$ 20.40 Cost of Equity: 6.98% Current Stock Price: $90.18

2015E 2016E 2017E 2018E 2019E 2020E 2021E Increase in Shares Outstanding: 98,000 440,000 1,031,000 1,899,000 Average Strike Price:$ 20.40 $ 19.08 $ 16.63 $ 14.65 Increase in Common Stock Account: 2.00 8.40 17.15 27.82

Change in Treasury Stock 110,000,000 110,000,000 110,000,000 110,000,000 110,000,000 110,000,000 Expected Price of Repurchased Shares:$ 90.18 $ 96.47 $ 103.21 $ 110.41 $ 118.12 $ 126.36 Number of Shares Repurchased: 1,219,783 1,140,197 1,065,804 996,265 931,262 870,501

Shares Outstanding (beginning of the year) 116,600,000 115,478,217 114,778,020 114,743,217 113,746,952 112,815,690 Plus: Shares Issued Through ESOP 98,000 440,000 1,031,000 0 0 0 Less: Shares Repurchased in Treasury 1,219,783 1,140,197 1,065,804 996,265 931,262 870,501 Shares Outstanding (end of the year) 115.48 114.78 114.74 113.75 112.82 111.95 VALUATION OF OPTIONS GRANTED IN ESOP

Ticker Symbol JBHT Current Stock Price $90.18 Risk Free Rate 2.52% Current Dividend Yield 1.00% Annualized St. Dev. of Stock Returns 38.80%

Average Average B‐S Value Range of Number Exercise Remaining Option of Options Outstanding Options of Shares Price Life (yrs) Price Granted Range 1 1,899,000 14.65 3.01 $ 73.95 $ 140,422,918 Range 2 1,031,000 16.63 2.35 $ 72.42 $ 74,669,016 Range 3 440,000 19.08 1.67 $ 70.40 $ 30,975,039 Range 4 98,000 20.40 0.86 $ 69.45 $ 6,805,661 Total 3,468,000$ 15.96 2.58$ 75.24 $ 253