A Dip In Knight-Swift Transportation Holdings Is An Opportunity For You Knight-Swift Transportation Holdings (NYSE: KNX) reported a good quarter and shares are down because of it. You might think shares are down because of weak guidance but they're not.

Knight-Swift Transportation Delivers, But A Little Less Than Expected

Knight-Swift Transportation Holdings (NYSE: KNX) reported a good quarter and shares are down because of it. You might think shares are down because of weak guidance but they're not. Possibly because the dividend was cut but it wasn't. Shares of Knight-Swift Transportation Holdings are down because the company missed the consensus target. And not even by a large margin. the $0.10 billion shortfall only missed the mark by 80 basis points but that was enough. The good news is that this knee-jerk reaction to the news we all expected is another opportunity to get into this stock. The trucking industry is entering a heyday that will only be limited by the number of rigs they can get on the road. In the words of Knight-Swift itself, "Over-the-road truckload demand is at unprecedented levels and expected to continue into 2022."

Knight-Swift Transportation Holdings Has A Mixed Quarter

Knight-Swift Transportation had a mixed Q1 period but that depends on how you are looking at things. Yes, the company failed to miss the consensus target but it did manage to grow revenue by nearly 9.0% over last year. And that is with fewer trucks on the road. When adjusted for fuel-surcharges the core growth is closer to 10.3% which we take for a favorable sign in regards to revenue. Core gains are outpacing fuel surcharges with oil prices at multi-year highs; in our view, this means fuel surcharges are coming back into the picture and will help boost revenue even more (as bad as that is for the inflation picture).

On a segment basis, the Intermodal and Logistics segments saw the most growth but all segments expanded from last year. Intermodal and Logistics, which together account for only 18% of the business, grew 13% and 50% respectively. The core trucking business ex-fuel surcharges grew a more tepid but no-less important 6.3% with favorable tailwinds driving the business. The high demand for trucking and shortage of drivers is leading to increased rates and that is padding the bottom line. Operating income increased by 58.9% to help drive a 98% increase in net income and an 80% increase in adjusted earnings. The GAAP $.077 is up 100% and beat the consensus by $0.09 or 13% despite the revenue shortfall. And margins are expected to improve further.

The company's guidance is fantastic. Exec's upped the target for full-year adjusted EPS to a range of $3.45 to $3.60 versus the previous $3.20 to $3.40 and the consensus $3.40. The only thing holding them back is the ability to scale with demand and that is due to driver shortages and hiccups in the new truck production line. As for new trucks, the company is targeting a 50% reduction in emissions by 2035 and is already building up its EV and new-age diesel fleets.

Knight-Swift, A Value Among Peers

Shares of Knight-Swift are trading at a paltry 14X this year's and next year's earnings despite its strong results, guidance, and valuation among peers. Shares of J.B. Hunt and Old Dominion Freight Lines command P/E ratios in the range of 25X to 35X earnings and they pay smaller dividends. The KNX dividend isn't one to brag about in terms of its size but it is incredibly safe and growing. The 0.80% yield is balanced by a fortress balance sheet, low 0.54X leverage, ample free cash flow, and a short history of past increases. The 5-year CAGR is fairly low too, about 5%, but the most recent was worth 25% to shareholders and it is still buyable. The stock goes ex-dividend on June 3rd.

The Technical Outlook: Knight-Swift Transportation Pulls Back To Support

Shares of Knight-Swift are down more than 3.0% in early action but we view this as a buying opportunity. The stock not only presents a value relative to peers but it is trading at a key support line with evidence of buying. Assuming the $47.50 level holds as support, we see this stock begin to consolidate and move up to retest the recent highs near $52 fairly soon. By the end of the summer (the Q2 reporting season) shares of KNX should be trading at new all-time highs.

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