Celadon Group, Inc. (CGI), Knight Transportation (KNX): Where Is the Growth in Transportation?

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Warren Buffett’s recent purchase of Burlington Northern Santa Fe shoved the rail industry into the spotlight, but trucks still serve an important function. It is true that trains and water are more efficient than trucks. Still, truckers benefit from a huge road network that they are not forced to maintain. Some trucking firms are strong companies, even if they do not offer the efficiencies of rail or water.



CGI Operating Margin TTM data by YCharts

A Trucker with Challenges

Celadon Group, Inc.Celadon Group, Inc. (NYSE:CGI) operates in the United States, Canada, and Mexico. Their focus on long haul routes exposes them to greater competition with railroads. In order to be successful, profitable trucking firms will need to learn to work with more efficient means of transportation and not against them. Trucks offer greater flexibility in places where there are no railways or waterways.

Celadon Group, Inc. (NYSE:CGI) has one of the youngest fleets with an average tractor age of 1.6 years as of March, 2012. Even though the firm is not in the best place, their young fleet will help to ward off high fuel costs.

Celadon Group, Inc. (NYSE:CGI)’s total debt to equity ratio of 1.11 and current profit margin of 4.9% are concerning. Their debt load and low margins coupled with the shift of long haul traffic to railroads make this trucker one firm best left on the sidelines.

Where Trucks Shine, the Short and Medium Haul

Knight Transportation (NYSE:KNX) focuses on medium and short haul routes. In general the past couple years have been very challenging. Between fuel price increases and the great recession, the trucking industry has seen a decrease in fleet size. Many small truckers were unable to survive the collapse in demand and subsequently entered bankruptcy. This trend ended up strengthening larger firms like Knight Transportation (NYSE:KNX) that have the capital and resources to survive a downturn.

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