Please ensure Javascript is enabled for purposes of website accessibility

Why Knight-Swift Stock Just Dropped 10%

By Rich Smith - Dec 4, 2018 at 1:54PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

UBS analysts downgraded it and see no "catalyst" to make the stock rise.

What happened

Shares of trucking company Knight-Swift Transportation (KNX 0.76%) are tumbling along with the rest of the transport stocks today -- except in Knight-Swift's case, there appears to be an identifiable reason for the decline.

This morning, analysts at UBS downgraded Knight-Swift shares to neutral, and cut their price target on Knight-Swift stock by 16%, to $36 a share.

A semitruck rolling downhill

UBS thinks it's all downhill for Knight-Swift now -- but what if profit margin turns upward? Image source: Getty Images.

So what

UBS cited the same general malaise and "cyclical concerns" that are plaguing other transports as part of its reason for downgrading, warning that these concerns are pressuring Knight-Swift stock despite truckers generally enjoying a "very favorable underlying market." The worry, explains UBS, is that this favorable market won't last, with "rising risks" to the economy in 2019 that could decrease demand for shipping -- and hurt Knight's profits in the process.

At the same time, the fact that things are so very "favorable" right now means it's hard to imagine how things might get even better. In UBS's view, they can't, and it therefore sees no "catalysts" that could help to lift Knight's shares.

Now what

I'm going to have to disagree with UBS on this one, however, because it seems to me the most important catalyst Knight-Swift could enjoy is pretty obvious: margin.

As recently as 2015, Knight Transportation was earning an operating profit margin in the 13.7% range. Merging with less profitable Swift, however, swiftly pulled the combined company's margin down to its present level of just 9%. As Knight continues to integrate Swift into its operations, and (hopefully) improve its efficiency so that the Swift portion of the business begins earning profit at closer to the rate Knight has earned historically, then it seems to me that overall profit margin should rise -- and profits with it.

With Knight-Swift stock trading for a price-to-earnings ratio of less than 8, I think this catalyst alone could suffice to make Knight-Swift stock a profitable investment.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Knight Transportation, Inc. Stock Quote
Knight Transportation, Inc.
KNX
$48.93 (0.76%) $0.37

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
332%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.