Transportation company JB Hunt Transport Services JBHT is set to join the S&P 500 index after market closes on Jun 30, 2015. J.B. Hunt will replace Integrys Energy Group TEG which will be acquired by the Milwaukee-based utility holding company Wisconsin Energy Corp. WEC.
Meanwhile, J.B. Hunt will yield its place in the S&P MidCap 400 index to S&P SmallCap 600 constituent Molina Healthcare MOH – a Long Beach, CA-based multi-state managed care organization.
With a portfolio of 500 leading companies that capture approximately 80% coverage of the available market capitalization, the S&P 500 is widely regarded as the best single measure of large cap U.S. equities. The list is periodically modified to do away with stocks that have been acquired by other companies, delisted from the stock exchange or which fail to meet the mandatory criteria of the benchmark index. Consequently, other companies that meet the inclusion criteria are added to the list to replace the scrapped stocks.
A company needs to fulfill certain criteria to be part of the S&P 500. Firstly, its market capitalization should be at least $5.3 billion. As of Jun 26, 2015, the market capitalization of J.B. Hunt was $9.77 billion. Moreover, at least half the outstanding shares of the firm should be available for public trading.
In addition, the company needs to have sufficient liquidity and a reasonable price. The ratio of annual dollar value traded to float-adjusted market capitalization should be 1 or more. Moreover, the company should have traded at least 250,000 shares in each of the six months leading up to the evaluation date.
To be listed on the S&P 500, a U.S. company needs to possess the following characteristics as well. It should file 10-K annual reports and should not be considered a foreign entity by the SEC. The U.S. portion of fixed assets and revenues must comprise a majority of the total, but need not be above 50%. When there is an inconsistency among these factors, assets establish plurality. Revenues determine plurality in the event of incomplete asset information. The company should also follow a corporate governance structure in line with the U.S. practices.
Moreover, the stock should be primarily listed on the NYSE (including NYSE Arca and NYSE MKT), the NASDAQ Global Select Market, the NASDAQ Select Market or the NASDAQ Capital Market. ADRs are not qualified for addition. Furthermore, the trailing four quarters’ average earnings surprise should be positive, along with a mandatory earnings beat in the last reported quarter.
Headquartered in Lowell, AR, JB Hunt, which is one of the leading truckload carriers in the U.S., duly fulfills all these criteria and has thereby made its way into the S&P 500 GICS ‘Industrials’ sector or Trucking Sub-Industry index. We note that as of May 29, 2015, the “Information Technology” sector had the highest representation (20.1%) on the S&P 500 index. The Industrials sector came fifth in terms of representation (10.2%) while the Telecommunication Services sector was least represented (2.3%). As of May 29, the mean market capitalization of the 500 constituents was $39.35 billion, while the median market cap was approximately $18.55 billion.
We believe, the news of JB Hunt's upcoming addition to the prestigious index is a key positive for the company. We expect the company to benefit from the resurgence in trade given its attractive asset-light (or even non-asset) models that provide the most attractive returns on invested capital in the industry. We expect the Intermodal and DCS segments to drive long-term growth at JB Hunt. The expected long-term earnings growth rate currently stands at an attractive14.8%. We are also impressed by its efforts to reward shareholders through dividend payments and share repurchases.
Zacks Rank
JB Hunt currently carries a Zacks Rank #3 (Hold). A stock worth considering in the same sector is Covenant Transportation Group, Inc. CVTI with a favorable Zacks Rank #1 (Strong Buy).
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