Knight Transportation Wins A New Bull, Deutsche Bank

One of America’s biggest trucking companies Knight Transportation KNX has agreed to merge with Swift Transportation Co SWFT to create one of the biggest trucking giants in the industry, to be valued at $5 billion.

Following the announcement, Deutsche Bank upgraded Knight Transportation to a Buy rating and raised its price target to $40 from $33.

Rating Justification

The upgrade from Deutsche Bank stems from the $75 million in cost synergies following the merger, along with potential for significant positive earnings re-rating when Knight management integrates with Swift operations.

“Ultimately we see upside potential for KNX shares over the mid-term, as synergies and industry fundamentals accelerate in 2018 and beyond,” said Deutsche Bank.

The merger agreement is seen as a positive on several fronts as it allows Knight Transportation to utilize its premium valuation multiple. The deal is expected to generate revenue and cost synergies of $15 million in the second half of 2017, and as much as $100 million in 2018, and $150 million in 2019, which equates to around 250 basis points of margin improvement.

Despite the upgrade, shares of Knight Transportation were down over three percent on Tuesday. Swift Transportation also fell nearly 4 percent on the day.

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