Analyst: Knight-Swift Holds Upside Potential

The lead-up campaign around Tesla Inc TSLA’s electric semi-truck has dented trucking stocks, but the Street remains bullish on traditional sector players.

Knight-Swift Transportation Holdings Inc KNX earned its eighth Buy rating Tuesday against three Holds and one Sell.

The Rating

KeyBanc’s Todd Fowler upgraded Knight-Swift to Overweight and established a $45 price target.

Fowler maintains Sector Weight ratings on Werner Enterprises, Inc. WERN, Heartland Express, Inc. HTLD, Schneider National Inc SNDR and Marten Transport, Ltd MRTN. (See Fowler's track record here.)

The Thesis

With the industry’s high rise in the dry-van spot rate index, expected acceleration in volume growth and flat to negative contract pricing since 2015, Knight-Swift could see mid-single-digit increases in 2018 contract rates coupled with margin expansion, according to KeyBanc.

“Following our review of historical valuation metrics, as well as an increasingly favorable fundamental backdrop, we are incrementally constructive with our truckload outlook,” Fowler said in a Monday note. 

Knight-Swift sits on historically high multiples, and while KeyBanc expects compression, it anticipates potential upside in valuation based on previous instances of indirect metric correlation.

Price Action

Knight-Swift’s stock had built momentum leading up to its third-quarter earnings report Nov. 6, but top- and bottom-line misses catalyzed a steep plunge in value.

Tuesday’s upgrade prompted a 2.5 percent pop, and at the time of publication, shares were trading up 1.2 percent at a rate of $38.52.

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