Knight Transportation (KNX) 3 Trucking Stocks That Cowen Upgraded Today on Strong 2022 Pricing

September 15, 2021 7:30 AM EDT
Get Alerts KNX Hot Sheet
Price: $50.75 +0.61%

Rating Summary:
    16 Buy, 14 Hold, 1 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 14 | Down: 19 | New: 48
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Cowen analyst Jason Seidl believes the market is underestimating the ability of the trucking industry to achieve strong pricing in 2022.

Therefore, the analyst upgrades shares of Knight-Swift (NYSE: KNX), Werner Enterprises (NASDAQ: WERN), and Schneider National (NYSE: SNDR) to Outperform from Market Perform.

“We now have much stronger conviction in the TL pricing outlook. Specifically, we believe pricing will have positive y/y growth in the mid-single digit range, following this year's outsized pricing increases of 10-15%. Current consensus views on '22 pricing remaining ~flat to down. This appears far too conservative in our view. Indeed, on one of our conference panels, we heard from a private company that manages over $12bn of freight annually who stated that they are preparing their customers (most of which are Fortune 500 companies with sophisticated supply chain capabilities) for rate increases next year. Another publicly traded carrier noted in a recent conference that they would be disappointed in getting 5% rate increases during the upcoming annual negotiations with carriers (investors should recall that this typically takes place December-May each year),” Seidl said in a client note.

Although the analyst takes note of tough comps for the second half of this year, he believes the group of these three stocks could deliver a 9% EPS growth vs 6% consensus.

“Historically, TL carriers renew contracts that allow for carriers to offset inflation, wage increases, insurance, among others. As we heard from numerous panelists last week, it is a carrier market – they have the ability to charge as much as they want right now, and shippers have no choice but to pay it. It is a delicate balance though, given the relationship-based nature of the business that will inevitably flip at some point in the future (could be a 2023 story). That being said, we believe TL carriers are well positioned to see normalized pricing growth in 2022 off of a double-digit comp, and see 2022 bottom line consensus being revised upwards as the positive pricing picture unfolds,” Seidl added.

A new price target for KNX is $62.00 per share from the prior $59.00.

“KNX posted a beat and raise when they reported 2Q earnings with a bullish outlook for capacity in 2022. We are currently modeling on the low end of management’s 2021 guidance as we remain cautious to some extent about the level of market strength given macro uncertainties such as COVID-19 variant impacts. Management sees OTR contract rate increases trending in the mid-teens, offset by shorter miles per truck, and modest pressure on tractor count; we believe the decline in utilization to be a reflection of the challenging driver market. We adjust our 2022 estimates to reflect pricing increases in 2022, which brings our EPS estimate to $4.40 from $4.35.”

The analyst also raised the price target on WERN to $56.00 per share from the prior $52.00.

“Off a Q2 that came in above our expectations (fell a penny short of consensus), WERN’s TTS segment grew 10% on the top line on higher revenue per mile, lower miles per truck, and 1% fewer average trucks. Adj. OR for this segment was 82.9%, an impressive margin improvement off of first quarter’s adj. OR of 85.7%. Dedicated rates increased above management’s 3%-5% guidance range. One-way TL average trucks declined 14% which was attributed to trucks moving to Dedicated and a challenging driver market. Within One-way TL, WERN is ~80% through annual contract bid season, with contract rates YTD averaging in the low double-digit range, and more recently rate renewals are tracking in the mid-to-high double-digit percentage range. We adjust our 2022 estimates on the notion of higher than previously anticipated pricing, which brings our estimate to $4.00 from $3.85,” the analyst adds.

SNDR’s new price target goes up by $2 to $32.00 per share.

“SNDR reported a second quarter well above our forecast and consensus expectations, leading management to increase full year guidance by 25% at the midpoint. In 2Q, network contract rates improved in the mid-teen double-digit percentages, with the remaining 25% of the book scheduled to be renewed in the third quarter. We were surprised to hear that SNDR has received 50% of their full year tractor unit orders through the first half of the year, despite supply shortages. While intermodal and logistics both drove outsized growth in the second quarter, we believe the TL segment will grow revenue/truck in 2022 by ~5%, with a ~flat tractor count. We also see SNDR’s logistics segment having upside to our estimates if tightness persists. We increase our 2022 EPS estimate to $2.10 from $2.05,” Seidl concludes.

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