Is Knight-Swift More Than What Meets The Eye? Morgan Stanley Reinstates As Top Pick

Morgan Stanley analyst Ravi Shanker reiterated an Overweight rating on the shares of Knight-Swift Transportation Holdings Inc KNX and raised the price target from $70 to $75.

The company reported better-than-expected Q3 FY23 earnings results, with a revenue of $2.02 billion, beating the consensus of $1.89 billion. Adjusted EPS of $0.41 exceeded the estimate of $0.36.

Trucking EBIT, the analyst said, did decline materially y/y (~66%), but this was much better than feared. This likely reflected a combination of USX trending better than expected but also some outperformance in the base business, which management noted was able to improve sequentially despite the impacts of fuel, said the analyst.

For LTL, the management noted that the results reflected elevated costs of the Yellow spillover and noted that they delivered sequential improvement, which is not typical from Q2 into Q3.

In Logistics, the analyst noted that despite some contribution from USX Logistics, revenues fell nearly 25% y/y as revenue per load fell ~15%, and loads declined another 10%. 

Management lowered the high-end of FY23 guidance, bringing the new range to $2.10-$2.20 ($2.10-$2.30 prior). According to the analyst, the guidance trim was driven by non-core items and was much better than feared.

The analyst specified that the management sounded just as constructive on supply-side squeezes, the inevitability of volumes to turn, and the potential for pricing momentum.

The analyst said KNX's multiple has not been given credit for the LTL opportunities or inorganic growth potential.

The analyst noted the beat and stability of the guide will send a powerful buy signal to this second-derivative sector. The analyst reinstated KNX as the Top Pick.

Following Q3, the analyst's FY23/24/25 EPS estimates move to $2.14/$3.84/$5.40 from $2.20/$3.86/$5.33.

Price Action: KNX shares are trading higher by 9.76% at $50.36 on the last check Friday.