Story updated at 10 a.m. to reflect market activity.
Knight Transportation fell 0.9% to $21.49 in morning trading.
Despite the downgrade, the analyst firm raised its price target for the trucking company to $25 from $23. The downgrade is because analyst Nicholas J. Bender believes the stock is fully valued.
"We are transferring coverage of Knight Transportation (KNX) with a Hold rating and $25 price target," Bender wrote. "Knight posted a strong 4Q13, and provided an optimistic outlook for 1H14. The improvement in the freight market was supported by commentary from other carriers, and thus we expect the core business to continue performing even while management searches for a tuck-in transaction.
"However, with the stock currently trading at 18.8x our above-consensus FY15 EPS estimate of $1.16 (in line with the 5-year average multiple and high-margin peers), valuation appears full. We do think a slight premium should be factored in for the potential of an accretive transaction, and thus we arrive at a $25 price target."
Separately, TheStreet Ratings team rates KNIGHT TRANSPORTATION INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
"We rate KNIGHT TRANSPORTATION INC (KNX) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, revenue growth, largely solid financial position with reasonable debt levels by most measures, increase in net income and solid stock price performance. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- KNIGHT TRANSPORTATION INC has improved earnings per share by 13.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, KNIGHT TRANSPORTATION INC increased its bottom line by earning $0.87 versus $0.80 in the prior year. This year, the market expects an improvement in earnings ($0.98 versus $0.87).
- Despite its growing revenue, the company underperformed as compared with the industry average of 4.9%. Since the same quarter one year prior, revenues slightly increased by 3.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- KNX's debt-to-equity ratio is very low at 0.07 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, KNX has a quick ratio of 1.89, which demonstrates the ability of the company to cover short-term liquidity needs.
- The net income growth from the same quarter one year ago has exceeded that of the Road & Rail industry average, but is less than that of the S&P 500. The net income increased by 13.6% when compared to the same quarter one year prior, going from $17.70 million to $20.10 million.
- Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 36.41% over the past year, a rise that has exceeded that of the S&P 500 Index. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- You can view the full analysis from the report here: KNX Ratings Report