Shares of trucking firm Knight-Swift Transportation have experienced a significant surge following the release of their earnings report. While the results were good but not exceptional, the market’s reaction reflects investor sentiment.
In the third quarter, Knight (ticker: KNX) reported earnings per share (EPS) of 41 cents from $2 billion in sales. These figures exceeded Wall Street’s expectations of 36 cents and $1.9 billion, respectively. Comparatively, in the same period last year, Knight recorded an EPS of $1.27 and sales of $1.9 billion.
This solid performance resulted in a slight adjustment to the guidance. The projected EPS midpoint for 2023 was lowered to $2.15 from $2.20. However, even with this revision, the updated full-year guidance suggests an EPS of approximately 52 cents per share in the fourth quarter. Analysts, on the other hand, anticipate 47 cents.
Knight’s guidance is rooted in the stability of truckload pricing. Despite a weak freight market and limited growth in the U.S. industrial economy, CEO David Jackson remains optimistic. In a news release, he stated that freight demand remains stable at low levels in the truckload market and relatively strong in the less-than-truckload (LTL) market.
LTL freight refers to shipments that do not require a full truckload, resulting in multiple small loads transported on a single truck. The recent closure of Yellow has further contributed to the demand for LTL services, which now accounts for roughly 12% of Knight’s overall sales.
Considering the challenging economic environment, Knight’s performance is commendable. While industries like U.S. retail are grappling with high inventories and sluggish growth, Knight shares are thriving. In premarket trading, the company’s shares surged by approximately 17.7% to reach $54, while both S&P 500 and Dow Jones Industrial Average futures experienced a decline of roughly 0.4%.
A Promising Quarter for Knight Transportation
Following the release of Knight Transportation’s quarterly report, analysts have weighed in with their assessments. TD Cowen analyst Jason Seidl has described the quarter as being in line with expectations. He also noted that the fourth-quarter guidance was slightly better than anticipated. However, Seidl maintained his Buy rating for the stock and kept the price target at $58.
Jonathan Chappell, an analyst at Evercore ISI, pointed out that the market’s reaction to the third-quarter results helps to offset the turbulence that Knight Transportation’s stock has experienced recently. Prior to the second-quarter earnings report, shares were valued at $55.85. The stock has since dropped to $54 and entered Friday trading at just under $46 per share. Chappell rates the shares as Hold and has set a price target of $55.
A Modest Upgrade
While an upgrade has contributed to a boost in the stock’s performance, it is worth noting that it is not an extremely bullish upgrade. J.P. Morgan analyst Brian Ossenbeck upgraded the stock from Sell to Hold. However, Ossenbeck remains cautious and does not guarantee pricing improvement for truckers in 2024. Therefore, he only raised his price target from $54 to $57 per share.
Investor Sentiment and Performance
It appears that investors were overly concerned about a negative outcome, as stability proved to be enough to ease their worries. In contrast to the disappointing report from J.B. Hunt Transport Services on October 18, which led to an 8.8% drop in its stock, Knight Transportation has fared relatively well.
Despite the overall positive sentiment, the stock has had a challenging year thus far. It has experienced a 12% decline year-to-date and an 18% drop over the past three months. Even over the past 12 months, the stock has slightly underperformed, with a 1% decline.
It will be interesting to see how Knight Transportation performs in the coming months and if there are any further developments that impact its stock value.