All the hysteria about supply chain gridlock and truck driver shortages has me wondering if trucking companies such as Knight Transportation (NYSE: KX).
To explain, Knight-Swift Transportation Holdings Inc. (NYSE: KNX) claims to own one of America’s largest truck fleets. Knight claims to have access to over 15,000 trucks and over 64,000 semi-trailers and operate freight 38 terminals. Knight’s subsidiaries include Swift Transportation, Abilene Motor Express and Barr-Nunn.
In addition, Knight claims to own over 4,000 semi-tractors and over 11,000 trailers outright. They claim those vehicles drive over 1.2 million miles a day. Additionally, Knight claims to employee over 4,222 drivers and own 25 freight terminals.
Can Supply Chain Gridlock help Knight Transportation?
Knight (NYSE: KNX) is one of many companies dealing with global supply chain gridlock. In particular, the mess at the ports of Long Beach and Los Angeles.
Shipping costs are exploding. Mining CEO Lewis Black told Forbes it now costs up to $30,000 to ship a container from China to the United States. In addition, Black claims the cost of shipping a container across the Atlantic rose from $1,200 to $6,000 in recent years.
Chassis shortages are creating the gridlock at Los Angeles area ports, Business Report speculates. A chassis is a trailer used to move cargo containers from ships to trains. The ports of Los Angeles and Long Beach do not have enough chasis trailers to move all the containers on ships backed up there. Over 70 ships were waiting to unload off Southern California on 28 October 2021.
The Milestone Chassis Company, which leases chassis trailers cannot fill orders until the third quarter of 2022 because of a backlog, David Hoehn told The Wall Street Journal. Hoehn is the executive vice president at Milestone Chassis Company.
Hence, equipment shortages and other solvable problems could cause transportation gridlock. Thus, transportation could recover and gridlock could end.
Does Knight Transportation Make Money?
Knight Transportation (KNX) makes some money. It reported a quarterly gross of profit of $1.44 billion and a quarterly operating income of $270.09 million on 30 September 2021.
There is growth at Knight. The quarterly revenues grew from $1.21 billion on 30 September 2020 to $1.642 billion on 30 September 2021. Stockrow estimates Knight’s revenues grew by 35.69% in the quarter ending on 30 September 2021.
Similarly, the quarterly gross profit grew from $861 billion on 30 September 2020. Additionally, the quarterly operating income grew from $165.46 million on 30 September 2020.
How Much Cash does Knight Transportation Generate?
Knight (KNX) does not generate much cash from its business. Knight reported a quarterly operating cash flow of $329.71 million and a quarterly ending cash flow of $107.29 million on 30 September 2021.
The quarterly ending cash flow fell from $119.76 million on 30 September 2020. However, the quarterly operating cash flow rose from $281.97 million on 30 September 2020.
Knight is borrowing enormous amounts of money. It reported a quarterly financing cash flow of $1.129 billion on 30 September 2021. The quarterly financing cash flow rose from -$87.46 million on 30 September 2020. Consequently, Knight’s total debt grew from $804 million on 30 September 2020 to $1.93 billion on 30 September 2021.
Knight Transportation cannot accumulate much cash. Knight had $345 million in cash and short-term investments on 30 September 2021. The cash and short-term investments rose from $286 million on 30 September 2020.
What Value Does Knight Transportation offer?
Knight-Swift Transportation (KNX) offers some more value. The Total Assets grew from $8.501 billion on 30 September 2020 to $10.355 billion on 30 September 2021.
Mr. Market thinks Knight offers more value. He paid $38.69 for Knight Transportation on 9 November 2020 and $59.38 on 9 November 2021. I think Knight’s financial numbers justify those numbers.
Knight operates in an industry that can grow. The American Trucking Associations For-Hire Truck Tonnage Index estimates demand for truckload freight grew by 5.7% between August and September 2021 and 6.3% in October 2021. The same index shows some spot market volumes grew by 120%.
Trucking is a Growing Business
In contrast, FTR Transportation Intelligence predicts truck freight volumes could grow by 5.8% in the Fourth Quarter of 2021. In addition, FTR Transportation Intelligence estimates that Gross Domestic Product (GDP) Goods Transport grew by 12.2% in the Second Quarter of 2021. FDR Estimates GDP Goods Transport could grow by 6% in the Fourth Quarter of 2021.
There are some problems on the horizon, including limited supplies of new Semi-tractors. FTR estimates US Manufacturers will only build 307,400 new Class 8 vehicles (semi-tractors) in 2021. However, that number could grow to 340,000 in 2022 and 350,000 2023. One reason for production delays is a well-publicized shortage of the semiconductors they install in most vehicles.
Hence, some companies could face shortages of new trucks and have to use less reliable older vehicles. Using older vehicles could increase flow and maintenance costs.
The statistics show Knight operates in a growing business. However, Knight could have trouble procuring equipment to take advantage of that growth.
Is Knight Transportation a Good Dividend Stock?
Knight Transportation (KNX) will pay four quarterly 10¢ dividends over the next year.
Dividend.com estimates Knight offered a 40¢ forward dividend and a 0.67% dividend yield on 9 November 2021. I think Knight’s dividend is low but reliable.
I consider Knight (KNX) a good buy for people who can live with low levels of cash. I think Knight will grow but the level of growth could be low. However, people who seek low share prices and dividends could appreciate Knight.
Originally published at https://marketmadhouse.com on November 9, 2021.