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Bank Of America Downgrades Knight Transportation Following Werner Warning

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Bank Of America Downgrades Knight Transportation Following Werner Warning

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

Werner Led The Way

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.

"Werner noted that shippers are pressuring carriers to accept rate declines for contract freight (typically 3–5 percent) or shift to the spot market, where prices are down 20 percent year-over-year," analyst Ken Hoexter wrote.

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

"[R]ates are significantly weaker than the flat level targeted entering the quarter, and with excess capacity and the soft freight demand market lasting longer than we expected, the pressure may not be cleared up for a few quarters," Hoexter said.

"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."

Estimates, Rating And Justification

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.

Latest Ratings for KNX

DateFirmActionFromTo
Dec 2018DowngradesBuyNeutral
Nov 2018UpgradesNeutralBuy
Oct 2018MaintainsOutperformOutperform

View More Analyst Ratings for KNX
View the Latest Analyst Ratings

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