Thursday, Credit Suisse upgraded Knight Transportation Inc. (KNX) shares to Neutral from Underperform and increased its price target to $17 from $16.
Analyst Ceraso believes the freight environment turned a corner in third quarter and that he has entered the expansion phase of the freight cycle, which is generally a good time to buy TL stocks. Although truckload stocks have historically delivered the best performance during freight expansions, rich valuation throughout the contraction period has been the basis of the analyst's negative stance on the sector.
However, market-implied expectations for KNX are now in line with both consensus and the analyst's expectations, suggesting a more reasonable valuation. Now that valuation looks less out of whack, the analyst feels it is no longer prudent to maintain an Underperform rating on KNX shares.
The analyst's valuation is based on the assumption that KNX can generate about $116 million in EBIT in fiscal 2011, or the equivalent of $0.85/share in earnings; this is his latest 2011 estimate, up from $0.81/share previously, and that the company can grow operating profit 11.0% annually on a 3-to-5 year view.
Currently, KNX is down $0.24 or 1.42% and trading at $16.65.
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