Truckload Rates Are Peaking, But But Knight-Swift May Not Be Unsaddled This Time

 

Cyclical industries are tricky. Not only do you often hear various iterations on the theme of “it’s different this time” during the peaks (spoiler alert – it’s almost never different), but you have the bull trap lure of attractive-looking valuations ahead of weaker revenues and margins, and often cuts to expectations as the cyclical highs and lows tend to exceed initial expectations.

So, with that backdrop, maybe it is different this time for Knight-Swift Transportation (NYSE:KNX). Given a still-tight market for trucks and drivers, not to mention ongoing growth in e-commerce and intermodal, I think there’s an argument for a shallower cyclical correction this cycle. What’s more, Knight is actively building up its non-truckload operations and truckload earnings may only be around half the mix when the cycle peaks.

I liked Knight back in August, and the shares have beaten the S&P 500 since then, rising about 13%. That performance only matches that of the Dow Jones Transportation Index, though, and while the shares have outperformed some truckload carriers (Heartland (HTLD), U.S. Xpress (USX), Werner (WERN), Schneider (SNDR) has outperformed, as have more logistics-driven names like J.B. Hunt (JBHT). I still believe these shares are undervalued, but I do advise readers to beware of cyclical correction risk.

 

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Truckload Rates Are Peaking, But But Knight-Swift May Not Be Unsaddled This Time