Investing.com -- Citi upgraded Knight-Swift Transportation and Saia to Buy and Old Dominion Freight Line to Neutral in a note Thursday, reversing recent downgrades after a pullback in trucking stock prices created sufficient upside to justify the rating changes.

The bank’s analysts noted that second-quarter earnings for transport companies are "likely to be among the strongest in years," with companies benefiting from "significantly tighter capacity conditions coupled with moderately improving demand."

Citi expects "solid year-on-year EPS gains reflecting higher truckload rates and margin recovery with robust outlooks signaling continued strength over the coming quarters."

Citi kept its price targets largely unchanged, maintaining Knight-Swift at $90 and Old Dominion at $228, while trimming Saia's target to $488 from $524.

The firm "remains concerned on valuations across much of our coverage, with upside to shares likely to be far more modest in 2H26 relative to 1H," but acknowledged "it is difficult to remain negative into rising earnings."

Looking ahead, Citi said the next stage of the rally will likely be defined by "dispersion in performance between management teams that can capitalize on higher rates to drive margin improvement and EPS growth without corresponding challenges" such as inflationary cost pressures and service failures.

Citi named TFI International as its top truck pick and said it continues to like UPS and GXO on valuation. Among rails, Union Pacific was highlighted as offering "attractive relative value," with Citi also seeing "opportunity for rails to push rates as offering under-appreciated upside."