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Cost-Cut Strategies Aid Knight-Swift (KNX) Amid Low Revenues

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We recently issued an updated report on Knight-Swift Transportation Holdings Inc. KNX.

Knight-Swift is being aided by efficient cost-control measures and enhanced safety procedures. Evidently, total operating expenses declined 6.9% year over year in 2020. Adjusted operating ratio (operating expenses as a % of revenues) increased to 85.3% in 2020 from 88.4% in 2019. The upside can be mainly attributed to lower costs. Lower the value of the metric, the better.

We are also impressed by the company’s efforts to add shareholders’ value via dividends and buybacks. In February 2020, the company’s board approved a 33.3% hike in quarterly cash dividend to 8 cents per share (annually 32 cents). During 2020, the company returned $54.2 million to its shareholders in the form of dividends and $179.6 million through share buybacks. Of the $179.6 million, the company bought back shares worth $145 million in fourth-quarter 2020. Its free cash flow generation supports shareholder-friendly activities. The company generated free cash flow of $532 million in 2020.

Meanwhile, the company’s freight conditions are still weak on a year-over-year basis. This hurt Knight-Swift's performance in 2020. Consequently, trucking revenues declined 3.5% year over year in 2020. With revenues from the trucking segment likely to be weak year over year in first-quarter 2021, the top line is likely to be under pressure in the March quarter.

Zacks Rank & Stocks to Consider

Knight-Swift currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Transportation sector are Kansas City Southern KSU, FedEx Corporation FDX and Herc Holdings Inc. HRI. Kansas City and FedEx carry a Zacks Rank #2 (Buy), while Herc Holdings sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term expected earnings per share (three to five years) growth rate for Kansas City, FedEx and Herc Holdings is pegged at 15%, 12% and 31.2%, respectively.

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