Barclays Reiterates Overweight Rating on Knight Transportation (KNX)
Barclays analyst Brandon Oglenski reiterated an Overweight rating and $62.00 price target on Knight Transportation (NYSE: KNX)
The analyst comments "Where we stand: Knight-Swift's third quarter result reflected a still-challenged fundamental backdrop, though management offered some optimism on pricing heading into next year. The Truckload vertical drove an operating miss to our forecast as lower utilization coincided with softer-than-expected margins, with LTL results also pressured by startup costs and newer, less efficient terminals. Nonetheless, management called out pockets of tightness across the market driving some project business in the fourth quarter, also noting that while current bid activity remains limited, the company is now realizing positive rate increases. CEO Adam Miller expects TL contract renewals in the low-to-mid single digit range in the upcoming bid season, perhaps building to closer to high-single digits by later in 2025 (with the shape of the upcycle relatively gradual in nature). The company communicated a focus on ensuring pricing gains are accretive to margins, which can be further aided by improvement in utilization rates that remain relatively subdued relative to history. Within LTL, Knight-Swift is weathering some cost challenges as it grows the network to expand its geographic reach; while expectations for nearterm margins have moved lower as a result, the company appears to be driving favorable commercial outcomes from the combined operations, with length of haul up again in 3Q (now up ~15% over the past two years), supporting meaningful yield expansion. Management views 2025 as a year of "growing into" its now-larger LTL network (with doors expected to be up over 30% in 2024), likely making some progress toward a mid-80s adj. OR by the back half of the year. At the same time, Knight is also likely to be active filling in the remaining gaps in the network map (most notably in the Northeast). Outside of Trucking, management characterized the Logistics segment as geared for improvement in a truckload upcycle (benefiting from overflow freight from the asset-based business) while the timeline for positive margins in Intermodal has been pushed out to 2025 as the segment reworks its business mix and looks to build density. We trim numbers to account for 1Q25 guidance (which is still based on seasonality and not a market inflection), but view management's commentary for pricing gains next year as quite consistent with our own outlook (see "Trucking Outlook Heading Into 2025" published 20 Aug 2024), supporting our expectations for a meaningful earnings recovery at Knight-Swift into 2026."
For an analyst ratings summary and ratings history on Knight Transportation click here. For more ratings news on Knight Transportation click here.
Shares of Knight Transportation closed at $52.74 yesterday.