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Why Knight Transportation (KNX) is in the Spotlight

Traders are keeping a close eye on Knight Transportation (NYSE:KNX) after the trucker agreed to merge with Swift Transportation Co (NYSE:SWFT) in an all-stock transaction. According to the deal terms, which is expected to close in the third quarter, each Swift share will convert into 0.72 shares of Knight-Swift while each share of Knight Transportation will be exchanged for one Knight-Swift share. Upon deal close, Swift shareholders will own around 54% of the new company while Knight investors will own the rest. According to management, the M&A deal is expected to unlock pre-tax revenue and cost synergies of around $15 million in the second half of 2017, $100 million in 2018 and $150 million in 2019, respectively.

Chariman Kevin Knight commented, “In Knight’s 26-year history, we have built a truckload company with industry leading margins and investment returns. When the two companies began discussions, we had four goals in mind: create a company with the best strategic position in our industry; identify significant realizable synergies that would create value for both sets of stockholders; create a business that over the long-term will operate at Knight’s historical margins and financial returns; and agree on a leadership and corporate governance framework that will benefit all stakeholders. I am confident we have achieved those goals.”

In separate news, Knight Transportation (NYSE:KNX) lowered its EPS guidance outlook to $0.16-$0.18 from $0.24-$0.27 for the first quarter, and $0.24-$0.27 down from $0.27-$0.30 for the second quarter. The second quarter guidance excludes costs associated with the recently announced merger transaction.

What Does The Smart Money Sentiment Say?

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 39.7% gains over the past 12 months and outperformed the 24.1% gain enjoyed by the S&P 500 ETFs. Our enhanced small-cap hedge fund strategy returned more than 45% over the last 12 months and outperformed SPY by more than 30 percentage points over the last 4.5 years (see details here).

Like Swift, the smart money community was a little more bullish on Knight in the fourth quarter. Of the 742 elite funds we track, 12 funds owned $40.31 million of Knight Transportation (NYSE:KNX) and accounted for 1.50% of the float on December 31, up from 9 funds and $34.57 million respectively on September 30. Jim Simons‘ Renaissance Technologies and Alexander Mitchell‘s Scopus Asset Management were among the new shareholders of Knight in the fourth quarter, having initiated stakes of 129,250 and 215,000 shares, respectively.

The Bottom Line

Traders are keenly watching Knight Transportation (NYSE:KNX) after the company announced a merger with fellow trucking peer Swift. If management unlocks enough synergies, bulls believe the stock has considerable upside. For more reading, check out ‘10 Biggest Trucking Companies In the World‘.

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Biggest Trucking Companies In the World

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