Knight-Swift Transporation Shifts Gear To Rally Mode

July 21, 2022 at 10:00 AM EDT

Under-Valued Knight-Swift Transportation Delivers Results

After several quarters of uncertainty, Knight-Swift Transportation (NYSE: KNX) delivered what the market was looking for. The company reported top and bottom outperformance and raised the guidance due to strong demand and margin improvements. Considering the stock’s valuation, about 9.5X the EPS outlook compared to J.B. Hunt's (NYSE: JBHT) 18.5X multiple, we’re not surprised to see the stock moving higher because of the results. The takeaway is that Knight-Swift Transportation is still trading at a deep discount to its competitors and has a robust outlook for capital appreciation on top of the capital return program.

Knight-Swift is not a robust dividend but it is a safe dividend that is backed up by a share repurchase program. The stock is yielding about 0.85% after the post-release pop in share prices and there is an expectation for growth. The company is paying out a low 8% of its earnings and has been increasing the dividend for the last 4 years so there is no reason not to expect another increase this year. Based on the Q2 results, the strong balance sheet, and the guidance we will not be surprised to see the 5th consecutive distribution increase come in line with the 13% CAGR.

Knight-Swift Advances On Strong Results

Knight-Swift had a great quarter despite softening in the spot market. The company reported $1.96 billion in consolidated revenue for a gain of 48.5% over last year. The revenue beat the consensus by 590 basis points as well and is driven by double-digit gains in all segments. Gains were strongest in the Logistics segment which grew by 52.5% while the Intermodal grew by 15.2% and the core Trucking segment by 11%. The key takeaway, however, is that margins widened in all segments and by at least 200 basis points. The margin improvement was strongest in the LTL segment which saw a gain of 720 basis points driven by acquisitional synergies and market strength.

Moving on to the income, the company improved its earnings on all levels and above the Marketbeat.com consensus as well. The operating income grew by 70.5%, the adjusted operating income by 66.1%, and the net income by 43.6% which resulted in solid bottom line results as well. The GAAP $1.35 is up 45% from last year while the adjusted $1.41 is up closer to 44% and beat by $0.06.

Looking forward, there are some clouds on the horizon but the underlying fundamentals remain positive for Knight-Swift. The company raised and narrowed its earnings guidance because of it, and to a range above the Marketbeat.com consensus figures. The new guidance is up $0.10 at the low end and $0.05 at the high end and we see upside risk in the figures. While the market may be cooling we’ve yet to see evidence of the deep recession that could be brewing.

The Technical Outlook: Knight-Swift Is In Rally Mode

Shares of Knight-Swift jumped more than 3.5% in the wake of the earnings report and guidance increase to break out to a new high. The new high is only a 4-month high but confirms a reversal that should take the price up to the $55 level. The $55 level is above our next resistance target and should be a sustainable level for this stock. If the market follows through on the value proposition we see this stock moving up into the $90 to $100 range.

Will Knight-Swift Transporation Make A Quick Move Higher?