Knight Transportation (NYSE:KNX) delivered a very strong report and we are not surprised. Not only is the industry supported by strong tailwinds but the company is working on growth and its competitors have been reporting strongly as well. The takeaways from the report are that revenue is growing across all segments, margins are widening, and the stock is falling because of it. In our view, the move is less than bearish due to technical and fundamental factors within the market. The bottom line is that Knight-Swift Transportation is growing, it’s profitable, it’s buying back shares, and it’s paying a dividend and that all points to higher share prices in our view.
Knight-Swift Transportation Beats And Raises FY22 Guidance
Knight-Swift Transportation had a strong quarter in which revenue grew by 42.2% gross and 38.8% ex-fuel surcharges. The gains were driven by organic and acquisitional strength that are both expected to continue because Knight-Swift is trying to build the nation’s dedicated trucking operation. All segments contributed to growth and margin with some notable performance in Trucking, Logistics, and Intermodal. Trucking saw YOY revenue growth but, more importantly, a 460 basis point improvement in margin. The Intermodal segment also saw a substantial improvement in margin, 1360 basis points, while it grew 7.5% on the top line. Logistics grew the most, up 139%, and demand remains high.
Earnings came in at $245.6 million on an adjusted basis, or 13.50% of revenue to drive better than expected results on the bottom line. The GAAP $1.52 is up from last year’s $0.82 while the adjusted $1.61 is up from $0.99 and beat the Marketbeat.com consensus by $0.18. Looking forward, the company is expecting the strength to continue into the coming year and guided the market to an EPS outlook above the current consensus. The expected $5.10 to $.530 compares to $5.01 and might be weak in light of the demand trends we are seeing in the economy.
The Analysts Are Supporting Knight-Swift Transportation
There has yet to be any analysts’ activity in the wake of the Knight-Swift earnings report but we think it is just a matter of time before there is. Based on the Marketbeat.com analyst tracking data, we think that activity will include price target and rating upgrades that will drive share prices higher. The current rating is a weak Buy with a notable uptrend in the number of analysts covering the stock. The stock has picked up 7 analysts over the last year for an increase of 50% in regards to coverage. Along with this is a consensus price target of $62 that implies 14% of the upside and it has been rising. The most recent analyst shout-out was a downgrade to Peer Perform from Outperform but, before that, there is a months-long string of price target increases, initiated coverage, and upgrades.
The Technical Outlook: Knight-Swift Transportation Confirms Support
Shares of Knight-Swift Transportation pulled back to support recently and confirmed that support in the days before the earnings report was released. Price action has fallen in the wake of the report but is still within recent ranges and above support with buying evident at the low end of the range. Assuming support holds at or near $54.30 we see this stock continuing sideways within its range of $54.30 to $62 with a chance of breaking out to new highs later in the year. Those highs may be sparked by results, analysts' activity, or a combination of both.
