On Jul 3, 2018, we initiated coverage on Knight-Swift Transportation Holdings Inc. KNX.

The company aims at growing through mergers and acquisitions. To this end, it acquired Abilene Motor Express this March. The buyout is a huge positive and is expected to supplement the business with 400 trucks and several drivers. Moreover, annual revenues are anticipated to get a boost of approximately $100 million.

Solid demand for freight and volume growth has been aiding the company. Notably, strong freight demand is enabling the carrier to charge higher prices for its cargo. In fact, the upbeat freight scenario drove the company’s first-quarter 2018 results. Earnings came above the Zacks Consensus Estimate and also soared more than 100% year over year.

The company’s initiatives to reward shareholders through dividend payments are also impressive.  As of Mar 31, 2018, it paid $31.3 million to stakeholders via dividends.

Knight-Swift’s measures to control debt are encouraging as well. During the first quarter, the company was able to reduce debt by $107 million, sequentially, despite the credit funding of Abilene acquisition. Also, that the company is not a highly leveraged entity is evident from its debt-to-equity (expressed as a percentage) ratio of 10.6%. The figure lies below the industry’s 12.5% tally.

The favorable scenario revolving around the stock is clear from the Zacks Consensus Estimate for current-year earnings being revised 0.9% upward in the last 60 days.

However, the company’s acute driver shortage and the subsequent constraint on truck count raise concerns.  During the first quarter, truck count declined by 385 compared with the number registered in fourth-quarter 2017. Rising fuel prices are another headwind for the company as exorbitant fuel costs might affect its bottom-line growth.

Zacks Rank & Other Key Picks

Knight-Swift carries a Zacks Rank #2 (Buy). Investors interested in the broader Transportation sector may also consider some other stocks worth considering like Herc Holdings Inc. HRI, Atlas Air Worldwide Holdings AAWW and Expeditors International of Washington, Inc. EXPD, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Herc Holdings, Atlas Air Worldwide and Expeditors have rallied more than 36%, 31% and 28%, respectively, in a year.

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