Bank Of America Downgrades Knight Transportation Following Werner Warning

Bank of America Merrill Lynch has downgraded Knight Transportation KNX to Neutral from Buy following lower-than-expected earnings outlook from Werner Enterprises, Inc. WERN.

Bank of America, which also downgraded Werner to Underperform, said, "The truckload market remains under pressure given excess capacity and soft retail demand." A weak freight market and driver pay hikes led Werner guide its second quarter earnings below consensus. Werner sees second-quarter EPS in the range of $0.21 to $0.25, significantly lower than the Street's view of $0.39.

Related Link: Expect Werner's Low Guidance To Drive Other Trucking Names Lower, Barclays Says

"Given Knight's larger than peer exposure to the transactional pricing market, and the shares only 4 percent below our prior objective, we shift down to a Neutral rating."

Hoexter slashed his EPS estimate of Knight Transportation for the second quarter, 2016 and 2017 to $0.30, $1.22, and $1.35, from $0.32, $1.30, and $1.45, respectively. The revised estimates are below consensus' $0.32 for the second quarter and $1.27 for 2016.

The downward revision comes as the analyst cut his average revenue per tractor estimate by 200 bps during 2016.

Further, the analyst's revised second quarter EPS estimates are below the company's $0.31–$0.34 target range. The analyst also trimmed his third quarter EPS forecast to $0.31, which also came in below the company range of $0.32–$0.35.

In addition, Hoexter cut his price target to $28 from $29.

At the time of writing, shares of Knight Transportation were down 5.45 percent to $26.35 and Werner slumped 8.59 percent to $22.56.