Knight-Swift: Earnings Growth Inflection Is Likely Around The Corner

Core Viewpoint - Knight-Swift Transportation Holdings (KNX) is positioned for growth, with 2Q24 earnings indicating a potential inflection point in earnings growth, supported by revenue trends, macroeconomic indicators, and management insights [2][4]. Business Overview - KNX operates primarily in the North American truckload market, with trucking accounting for 66% of revenue, followed by less-than-truckload (15%), logistics (8%), and intermodal (6%) [3]. - In 2Q24, KNX's revenue grew by 18.9% year-over-year, reaching $1.85 billion, while operating income increased approximately 72% sequentially from $51 million in 1Q24 to $89 million in 2Q24 [3]. - Excluding a $12.5 million auto liability claim charge, the earnings per share (EPS) would have exceeded consensus estimates [3]. Signs of Growth - Total revenue growth excluding fuel surcharge has accelerated, suggesting potential for continued growth in the upcoming quarters [5]. - Utilization rates have improved, with average miles per tractor increasing from 19,894 to 20,518, indicating operational efficiency [5]. - Positive macroeconomic indicators, such as an expected interest rate cut in 2H24 and strong US GDP growth, support a favorable outlook for the trucking industry [5][6]. - Retailers are approaching restocking levels, which is likely to increase logistical demand [6]. Strategic Initiatives - KNX has expanded its door count by 22% since the beginning of the year, positioning the company to benefit from increased demand [6]. - The acquisition of DHE enhances KNX's market presence, particularly in California, and provides additional less-than-truckload facilities [6]. - Management has noted a healthy demand for capacity, with customers securing additional capacity to support elevated volumes, indicating a potential industry turnaround [6]. Valuation - A forward price-to-earnings (PE) model suggests an upside potential of 48% by FY25, driven by expected strong earnings growth [7]. - The price target for KNX is set at $77, based on consensus FY25 EPS estimates and historical valuation metrics [7].