Tags: Knight | Transportation | strong | KNX

Knight Transportation: Strong In a Fractured Market

By    |   Wednesday, 04 January 2012 03:29 PM

Knight Transportation (KNX), the sixth largest full-truckload carrier in the United States by revenue, represents a strong player in a fractured market.

The top 15 carriers in the industry account for just 6 percent of revenue. But Knight has risen to the upper echelon of the field on its financial performance, benefiting from a strong emphasis on cost controls and efficiency.

Its annual return on invested capital has averaged 15 percent during the last 10 years, according to Morningstar. The company’s operating ratio (expenses divided by revenue excluding fuel surcharges) has averaged a healthy 82 percent during that period.

In addition to its main business of dry-van trucking, Knight has expanded into refrigerated units, freight brokerage, port drayage, and rail intermodal services over the past seven years. The company is methodically expanding those areas.

As for its dry-van activities, Knight concentrates on trips with an average length of 500 miles, which makes sense given that regional shipments account for more than 75 percent of the truckload industry’s volume, according to Morningstar.

Knight registered net income of $16.6 million in the third quarter, little changed from $16.7 million a year earlier. Revenue jumped 19 percent to $227.1 million.

Better prospects

Standard & Poor’s analyst Kirk Kirkeby has a hold rating on Knight shares. “We think KNX has better prospects for revenue growth than many truckload peers on account of its expansion into the refrigerated market and port drayage,” he writes.

“However, we expect margins to remain constrained over the medium term until these new operations mature. The basic dry van operations currently account for approximately 80 percent of total revenues.”

Kirkeby has a 12-month price target of $16 for Knight stock, up 5 percent from recent levels.

The company next reports earnings Jan. 24.

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Wednesday, 04 January 2012 03:29 PM
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