Knight-Swift Transportation Holdings Inc.

KNX Details

Knight-Swift Transportation Holdings Inc. (NYSE: KNX) is the largest truckload carrier and logistics provider in North America. In addition, KNX also works with third-party capacity suppliers to provide a range of shipping solutions. It offers various truckload transportation services, owing to its countrywide network of business units and terminals in the United States and Mexico. The company generates its revenues through three segments: 1) trucking, 2) logistics, and 3) intermodal.

Launch of New Services: KNX announced the establishment of Iron Truck Services on September 14, 2021, a company that brings together services critical to transportation providers, such as insurance, equipment maintenance, fuel purchases, and truck sales and rentals. By utilizing KNX's size and infrastructure, Iron Trucks Services delivers economical solutions to truckload carriers.

Robust H1FY21 Results: The company reported a 16.16% rise in total revenues to USD 2.54 billion during H1FY21 (ending June 30, 2021) compared to USD 2.19 billion during H1FY20, primarily due to an increase in brokerage load volumes and revenue per load. In addition, net income increased to USD 282.98 million during H1FY21 compared to USD 146.05 million during H1FY20. As of June 30, 2021, the company had cash and cash equivalents of USD 179.03 million, with total debt of USD 870.66 million.

Key Risks: In FY20, FY19, and FY18, the truckload carrier's largest client contributed 16.8%, 13.3%, and 14.6% of total revenue. The company's financial and operational health might be jeopardized in the future if it places too much dependence on a single customer for income.

Outlook: KNX forecasts its adjusted earnings per share (EPS) for FY21 to range between USD 3.90 – 4.05, according to its Q2FY21 press release, anticipating a mid-teens increase (in % terms) in Over-the-Road (OTR) contract rate and sustained strength in logistics revenue growth. It also forecasts its net cash capex to be around USD 500 – 550 million in FY21, with a 25.0 – 27.0% tax rate.

Valuation Methodology: EV/EBITDA per share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

KNX Daily Technical Chart (Source: Refinitiv)

Stock Recommendation: KNX's share price has declined 4.40% in the past six months and is currently above the mid-band of the 52-week range of USD 37.07 to USD 54.00. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is at 29.62. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 50.34. Considering the company's market dominance in North America, the debut of new services, and healthy balance sheet, we recommend a "Hold" rating on the stock at the current price of USD 47.83, down 0.56% as of October 11, 2021, 11:56 AM ET.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

Standard Motors Products, Inc.

SMP Details

Standard Motor Products, Inc. (NYSE: SMP) is a leading independent automotive aftermarket manufacturer, distributor, and marketer of replacement parts, with a growing focus on the original equipment (OE) and OE service markets. Its two operating segments are, 1) Engine Management, which manufactures and remanufactures ignition and emission parts, ignition wires, battery cables, fuel system parts, and sensors for vehicle systems, and 2) Temperature Control, which manufactures and remanufactures air conditioning compressors, air conditioning and heating parts, engine cooling system parts, power window accessories, and windshield washer system parts.

Acquiring the Stabil Group: On September 01, 2021, the company closed the 100% acquisition of Stabil Operative Group GmbH, a German manufacturer and distributor of OE components, for a total consideration of USD 1.5 million. Stabil has operating facilities in Germany and Hungary and generates around USD 25 million in annual revenue. The transaction is expected to be accretive to FY22 diluted earnings per share.

Q2FY21 Results: The company reported a 37.97% increase in net sales to USD 342.08 million in Q2FY21 (ended June 30, 2021) compared to USD 247.94 million in Q2FY20, due to the continued normalization of sales levels post COVID-19 pandemic. Net earnings for Q2FY21 were USD 27.16 million vs. USD 10.97 million in Q2FY20. The company exited Q2FY21 with cash and cash equivalents of USD 27.45 million, with total debt amounting to USD 137.48 million. In its Q2FY21 earnings release, SMP declared a quarterly dividend of USD 0.25 per common share, which was paid on September 01, 2021, to stockholders of record on August 16, 2021.

Key Risks: The company's five largest individual customers accounted for 68% and 69% of its net sales in FY20 and FY19, respectively. The loss of any of these customers, or a significant reduction in purchases, could have a material adverse effect on SMP's business and financial condition.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

SMP Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: SMP's stock price increased 7.01% in the past three months and is currently at the mid-point of the 52-week range of USD 39.09 to USD 55.29. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is at 72.76. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 51.49. Considering the slight uptick in the stock price in the past three months, the recent acquisition of the Stabil Group, and strong financial performance, we recommend a "Hold" rating on the stock at the current price of USD 47.18, up 1.59% as of October 11, 2021, 11:13 AM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

U.S. Xpress Enterprises, Inc.

USX Details

U.S. Xpress Enterprises, Inc. (NYSE: USX) is amongst the largest US asset-based freight carriers, providing various services through its truckload fleet. The company manages third-party carriers through its non-asset-based truck brokerage system. It generates revenue from two segments: 1) Truckload, providing transportation services via Over-The-Road (OTR) and dedicated type contracts, and 2) Brokerage, which generates income by brokering freight to third-party operators.

Reaching Milestones: On August 17, 2021, USX announced that Variant, its digitally choreographed fleet, which started with five trucks in June 2019, has now reached 1,200 seated tractors and is on schedule to achieve or exceed 1,500 trucks by FY21 end. Variant operates through its fleet orchestration platform, Vector, a web of interconnected algorithms and services, which helps systematically position the trucks to meet demand while also informing future order acceptance and the relative impact of each order on the broader network.

Q2FY21 Results: The company reported a 12.44% rise in total operating revenue to USD 475.02 million in Q2FY21 (ended June 30, 2021), compared to USD 422.48 million in Q2FY20. The net income (attributable to common stockholders) for Q2FY21 increased to USD 19.10 million from USD 9.40 million reported in Q2FY20. USX's consolidated average revenue per tractor per week improved 6.85% YoY to USD 4,053 in Q2FY21. The company exited the current quarter with a cash balance of USD 5.28 million and total debt of USD 339.20 million.

Key Risks: Each share of USX's Class B common stock has five votes, whereas each share of Class A common stock has just one vote. Some Fuller and Quinn family members (Max Fuller and Patrick Quinn formed the company in 1985) who own class B shares have a disproportionate amount of voting power, limiting other shareholders' ability to influence business decisions.

Outlook: In its Q2FY21 earnings release, USX stated that it expects to witness robust freight demand in the remainder of FY21, which will enable a robust spot market and contract renewal environment for the rest of FY21. In addition, USX forecasts its total fleet size to start growing in Q3FY21, with Variant holding an increased percentage of the fleet. USX also plans to spend USD 130.0 – 150.0 million in capital expenditures in FY21 to execute its equipment replacement strategy and maintain a steady average age of the equipment. It may also increase this budget to fund more profitable expansion prospects.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

USX Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: USX's stock price fell 3.55% in the past three months and is currently leaning towards the lower end of the 52-week range of USD 6.18 to USD 12.33. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 41.60. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 10.33. Considering the slight movement in the stock price, market dominance, growth potential, and current valuation, we recommend a "Hold" rating on the stock at the current price of USD 8.42, down 2.21% as of October 11, 2021, at 1:05 PM ET.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.