Knight-Swift Transportation's Merger Carries It To Top Pick Status At Morgan Stanley

Knight-Swift Transportation Holdings Inc KNX, a transportation giant born out of the combination of Knight Transportation and Swift Transportation, is considered by some analysts to be a best-in-class operator.

The Analyst

Morgan Stanley's Ravi Shanker resumed coverage of Knight-Swift's stock with an Overweight rating and $50 price target.

The Thesis

The combination of Knight and Swift's businesses created a "uniquely positioned" transportation company that is situated to take advantage of both cyclical and idiosyncratic opportunities, Shanker said in a research report. (See Shanker's track record here.) 

The company is led by one of the best management teams in the entire trucking space, the analyst said — one that could generate upside versus consensus estimates.

Knight-Swift's business is also attractive given its largest one-way full truckload exposure among the large trucking carriers and has proven to be "the most nimble" in the spot market, Shanker said. Knight-Swift is the most exposed to the favorable benefits of pricing gains in 2018 that are driven by electronic logging devices, he said. 

The Truckload Freight Index  and Truckload Sentiment Surveys both indicate at least a mid-single-digit rate increase in next year's bid season along with volume, utilization, and operating ratio gains, all of which will only be partly offset by wage increases, according to Morgan Stanley. 

Price Action

Shares of Knight-Swift are up more than 5 percent since the completion of the merger in September.

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