KeyBanc's Key Takeaways From Meetings With Knight-Swift Transportation Management

Knight-Swift Transportation Holdings Inc KNX is a good choice for investors seeking truckload exposure, given the compelling stock valuation and the company’s focus on operational improvement across segments and its reduced leverage which supports capital deployment, according to KeyBanc Capital Markets.

The Analyst

KeyBanc’s Todd Fowler maintained an Overweight rating on Knight-Swift Transportation with a price target of $44.

The Thesis

Meetings with Knight-Swift Transportation’s CEO Dave Jackson indicated expectations of a seasonal upturn in trends during the holiday period, albeit below last year’s levels, Fowler said in the note.

The bid activity for 2019 has almost been completed and suggests only a modest improvement in contract renewals. Revenue per mile is expected to be negative in the back half of the year, reflecting fewer non-contract opportunities, Fowler noted.

Fundamentals could bottom in the near term due to lower truck orders and increased carrier failures, the analyst said, while adding that rates may improve in 2020, backed easier comps.

Management’s guidance for the back half of 2019 seemed achievable, Fowler mentioned.

He further added that management meetings suggested continued efforts to improve margins through operational initiatives.

“With the Swift Truckload adjusted operating ratio 200-400 bps above Knight Truckload, we see potential for further incremental improvement,” the analyst wrote.