Here's Why Investors Should Hold Knight-Swift (KNX) Stock Now
Knight-Swift Transportation Holdings Inc. KNX is benefiting from shareholder-friendly measures. However, high cost is a headwind.
Let’s delve deeper.
Factors Working in Favor of KNX
The company’s efforts to boost shareholders’ value via dividends and buybacks are impressive. In February 2023, the company’s board approved a 16.67% hike in quarterly cash dividend to 14 cents per share (annually 56 cents).
Its free cash flow generation supports shareholder-friendly activities. Free cash flow generated during 2022 was $818.71 million. In 2022, KNX returned $300 million to its shareholders in form of share repurchases and $78.3 million as dividends. Free cash flow generated during the first nine months of 2023 was $235.05 million.
In July, Knight-Swift completed the acquisition of U.S. Xpress Enterprises. The total enterprise value of this deal, excluding transaction costs, was approximately $808 million. The deal is likely to be accretive to Knight-Swift’s adjusted earnings per share from 2024 onward.
Management is targeting adjusted operating ratio (operating expenses as a percentage of revenues) in high 80s by 2026 apart from generating mid-teens return on invested capital for the consolidated U.S. Xpress business unit. The acquisition will boost the company's revenue stream significantly.
Factors Ailing KNX
High costs related to driver wages, equipment, maintenance, fuel and other expenses are restricting Knight-Swift’s bottom-line growth. During 2022, salaries, wages and benefits expenses rose 22.7% year over year while operations and maintenance expenses climbed 34.9%.
With oil prices rising, escalating fuel costs are flaring up operating costs. Fuel expenses augmented 63.9% year over year in 2022, inflating operating expenses 25.9% year over year to $6.34 billion. The recent production cut by OPEC+ oil cartel, which includes OPEC members and Russia, has led to a surge in oil prices. This may lead to inflationary pressure aggravating and further economic uncertainty, in turn hurting KNX's prospects further.
KNX continues to expect net cash capital expenditures for 2023 in the $700-$750 million band.
Zacks Rank & Key Picks
Knight-Swift currently carries a Zacks Rank #3 (Hold).
Investors interested in the Zacks Transportation sector may consider better-ranked stocks like Ryanair Holdings RYAAY and SkyWest SKYW, each currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
RYAAY is benefiting from buoyant air-traffic scenario post Covid. Traffic grew 11% to 105.4 million during the first half of fiscal 2024. On the back of robust traffic scenario, RYAAY’s profit after tax was €2.18 billion during the first half of fiscal 2024, up 59% year over year. Ryanair expects fiscal 2024 traffic to be183.5 million.
SKYW's fleet modernization efforts are commendable. Initiatives to reward its shareholders also bode well. The Zacks Consensus Estimate for 2024 earnings increased 3.5% in the past 60 days.
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Ryanair Holdings PLC (RYAAY) : Free Stock Analysis Report
Knight-Swift Transportation Holdings Inc. (KNX) : Free Stock Analysis Report
SkyWest, Inc. (SKYW) : Free Stock Analysis Report
