Knight-Swift Transportation’s (KNX) Armor Shines After Challenging Year
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Knight-Swift Transportation’s (KNX) Armor Shines After Challenging Year

Story Highlights

Amidst a challenging trucking landscape, Knight-Swift Transportation’s strategic acquisitions, including the recent purchase of Dependable Highway Express, fuels its ambitious growth, pointing to potentially higher profitability and creating an attractive investment opportunity in the industry.

In the wake of a challenging year for trucking industry, depicted by declining freight shipments, there are glimmers of revival with increasing pricing elements and container volumes. Knight-Swift Transportation (KNX) is poised to capitalize on these favorable market shifts and escalate its profitability in the coming years. The company’s recent acquisition of the less-than-truckload (LTL) carrier Dependable Highway Express (DHE) is a promising development and a strategic move that underscores the company’s future plans.

This marks the third such addition to the firm. With this strategic expansion of its LTL operation, Knight-Swift is on the verge of breaking into the industry’s top-10 carriers, underpinning its ambitious blueprint for a national network. The stock is up over 9% over the past month and trades at a discount to industry peers, making it an attractive option for investors looking for exposure to the trucking industry.

Knight-Swift’s Ambitious Growth Strategy

Knight-Swift Transportation offers shipping and transportation services spanning truckload transportation, less-than-truckload transportation, logistics, and business services.

The company has acquired the operating assets of the regional less-than-truckload (LTL) division of Dependable Highway Express (DHE) for an undisclosed amount. The acquisition is part of Knight-Swift’s plans to expand its LTL business nationwide, particularly in Southwest markets like California, Arizona, and Nevada, raising its coverage of the U.S. population from 55% to 70%. The deal is expected to increase KNX’s LTL terminals and door counts by around 10%. DHE, a strong Southwest competitor, had generated around $122 million in operating revenue over the last year with a 10% operating margin.

This marks the company’s third acquisition in the Less Than Truckload (LTL) market as a part of its aggressive expansion strategy. Its 2021 acquisitions included AAA Cooper Transportation for $1.35 billion and Midwest Motor Express for $150 million. Over the past three years, the company has added or leased 56 terminals, with 25 secured from the bankrupt Yellow Corp.

This has propelled Knight-Swift’s annual LTL revenue stream to over $1 billion, placing it close to being in the top-10 carriers list. Knight-Swift intends to expand, with plans to open 38 more terminals in 2024. However, the Northeast remains a significant gap in its coverage, so further M&A is likely.

Knight-Swift’s Recent Financial Results

The company’s recently announced Q2 2024 performance and showcased mixed outcomes. Revenue of $1.85 billion surpassed the analysts’ estimates of $1.83 billion and marked a substantial rise of 18.9% year-over-year. However, the operating income saw a significant downturn, plunging 32.5% from $94,030 in Q2 2023 to $63,460 in Q2 2024. In addition, the net income attributable to Knight-Swift declined steeply by 67.9% year-on-year. Lastly, the company undershot the estimated earnings per share (EPS) expectations, with EPS of $0.24 underperforming the consensus forecast of $0.27.

As of the quarter’s end, the company reported a balance of $1.1 billion in unrestricted cash and liquidity, alongside a debt of $2.5 billion. It generated $310.7 million in operating cash flows, paid down finances such as lease liabilities ($39.7 million) and operating lease liabilities ($91.4 million), and made net repayments on the 2021 Revolver and accounts receivable securitization totaling $21.6 million.

Free cash flow reached $52.1 million, with the board of directors declaring a quarterly cash dividend of $0.16 per share, equating to a dividend yield of 1.24%.

Management has also issued guidance for the the full year, with Adjusted EPS for Q3 and Q4 of 2024 anticipated to range between $0.31 – $0.35 and $0.32 – $0.36, respectively.

What Is the Price Target for KNX Stock?

After a disappointing year, the stock has rebounded, climbing over 16% in the past three months. It trades near the middle of its 52-week price range of $45.55 – $60.99 and shows positive price momentum, trading above its 20-day (50.15) and 50-day (49.63) moving averages. With an EV to EBITDA of 10.15, the stock trades at a discount to peers in the Trucking industry, where the average EV/EBITDA is 14.96.

Analysts following the company have been constructive on the stock. For instance, BofA analyst Ken Hoexter reiterated a Buy rating on the shares and raised the price target to $60.

Knight Transportation is rated a Moderate Buy overall, based on the recommendations and price targets issued by 11 analysts. The average price target for KNX stock is $58.78, representing a potential 7.32% upside from current levels.

See more KNX analyst ratings

Final Analysis on KNX

Knight-Swift Transportation is strategically poised to enhance its footprint and profitability in the future, boosting its appeal to potential investors. The company’s recent acquisition of Dependable Highway Express (DHE) is a significant step towards expanding its less-than-truckload operation, potentially propelling it into the top 10 industry carriers.

Despite a mixed Q2 2024 performance, the company has a robust cash and liquidity balance, hinted at promising future earnings, and paid notable dividends. Trading at a discount compared to its peers, KNX is positioned as an attractive investment in the trucking industry.

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