Knight-Swift Transportation

Knight-Swift’s second-quarter consolidated revenue-before-fuel rose 5.5% year on year, the first meaningful increase in almost two years, particularly for the flagship truckload operations. Less-than-truckload revenue declined on revenue quality efforts (lower shipments), but demand is improving. 

Why it matters: Pricing recovery is the key highlight during the quarter. Truckload spot rates have surged this year, driven by firming capacity from small carrier attrition accelerated by new English language proficiency regulations for drivers and the Supreme Court's broker liability ruling adding another filter on capacity. Knight's truckload contract rates are also starting to rebound as new bids increasingly reflect the tight capacity backdrop. Barring a tariff or oil shock-driven economic pullback, we still look for truckload volume trends to flip positive later this year, and for LTL tonnage to strengthen in the second half, with help from recovering industrial end markets.

Key stats: Adjusted TL segment operating ratio (expenses/revenue, excluding fuel and nonrecurring items) improved materially on pricing recovery and fewer empty miles, partly offset by elevated driver turnover. The LTL OR also improved as efficiency and revenue quality initiatives gained traction.

The bottom line: We expect to boost our DCF-derived $54 fair value estimate for no-moat Knight by 3%-5% due to raising our medium-term revenue forecasts on better-than-expected pricing recovery. The shares surged in the first half of 2026 on firming industry capacity and the onset of pricing recovery following several years of marked weakness. That said, we think investors are baking in optimistic longer-term growth assumptions, and the shares look rich. Knight was modestly undervalued for much of 2025. This is a common theme across transportation names we cover, as these stocks historically surge ahead of an expected cyclical freight upturn, trading at peak-like multiples.

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We are raising our DCF-derived fair value estimate to $57 per share from $54, due in part to boosting our medium-term revenue forecast on stronger-than-expected rebound in contract rates this year. Our adjusted operating ratio (expenses/revenue net of fuel) calculations discussed below remove nonrecurring costs but include acquisition amortization.

Throughout 2023, demand and rates across the domestic trucking and freight brokerage markets faced persistent weakness as the truckload market supply/demand equation loosened and as retail sector restocking dried up on elevated inventories. On the other hand, Knight's LTL division pricing and tonnage saw a strong offset from freight diversions from bankrupt Yellow.

The unfavorable full-truckload and freight brokerage operating environment persisted into 2024 and 2025 in terms of the sluggish industrial sector and abundant truckload industry capacity. Truckload pricing and demand stabilized with the return of normal seasonality, and capacity firmed up slightly as carriers exited the marketplace due to low rates and new English language proficiency regulations. Also, the LTL division enjoyed favorable pricing thanks to firm capacity rooted in the 2023 failure of Yellow. Knight's revenue before fuel grew 5% in 2024 due to organic LTL revenue growth and acquisitions (U.S. Xpress in mid-2023 and LTL carrier DHE in mid-2024). Growth slowed to 1% in 2025 as the firm lapped the DHE acquisition and the freight backdrop remained lackluster.

Knight's adjusted OR net of fuel deteriorated to 95.9% in 2024 due to U.S. Xpress' lower-margin profile and lackluster truckload pricing. The LTL OR deteriorated due to the DHE integration and startup costs associated with new facilities, which are still ramping up volume density. The OR improved slightly in 2025, primarily thanks to successful productivity and efficiency efforts amid a subdued yet stable freight backdrop.

Barring a tariff- or oil shock-driven economic pullback, we look for truckload volume growth to return this year and for LTL tonnage growth to persist on a cyclical uptick in retailer restocking and recovering industrial end markets. Truckload contract rates should see a continued rebound amid increasingly favorable bidding conditions. Truckload industry spot rates have already been spiking, driven by tightening capacity from small-carrier attrition accelerated by new English language proficiency regulations for drivers and the Supreme Court's broker liability ruling adding another filter on capacity. Overall, for 2026, we assume consolidated organic revenue (before fuel) trends flip positive, rising 6%-7%, with similar high-single-digit growth in 2027.

We model OR improvement to 93.2% in 2026 and approximately 89.7% in 2027. These forecasts are predicated on continued progress driving down U.S. Xpress' OR (which has borne fruit), with rising network density materially lifting the profitability of newly opened LTL facilities. Excluding deal amortization, our 2026 and 2027 adjusted consolidated OR forecasts are roughly 92.1% and 88.7%, respectively.

We think Knight is capable of 5%-6% long-term (steady-state) organic top-line growth. We model a midcycle adjusted OR of 88.5%-89.0%. Our midcycle OR assumption takes into consideration Knight's outstanding record of operational execution.

U.S. Xpress, acquired in July 2023, had been a carrier of average to below-average quality; it generated a total operating ratio near 101% in 2022. However, Knight successfully applied its industry-leading execution to the Swift acquisition, bringing Swift's profitability levels close to those of its own over time. Knight is on track to accomplish something similar with U.S. Xpress.

Although Knight's legacy full-truckload operations (ignoring Swift) rank among the most profitable carriers in the industry, and the firm has a long history of generating shareholder value, we do not think Knight-Swift has an economic moat. Historically, we have not awarded an economic moat to any pure-play TL carrier we have covered. From a competitive standpoint, the broader TL shipping space offers scant opportunities to differentiate. In our view, even the most efficient pure-play truckers struggle to gain a durable competitive edge via the key economic moat sources: cost advantage, intangible assets, switching costs, network effect, or efficient scale.

In terms of cost advantage, increasing fleet size doesn’t automatically translate into lower costs. This is partly because a truckload carrier can’t boost route density (like LTL carriers can) by adding more customers, as by definition it hauls a full-trailer load from point A to point B for one customer at a time. Rather, to boost volume, a carrier must buy another truck and hire another driver. There’s a minimum utilization (miles per tractor) needed to be reasonably profitable, but that can only go so far, and most large truckers are already adept at maximizing network optimization.

Additionally, barriers to entry are unusually low. All that’s needed to enter the TL business is to finance a tractor and obtain a commercial driver's license, and a driver is largely ready to haul freight. Unlike the LTL industry, which hasn’t seen many carriers enter the marketplace over the decades, thousands of small owner-operators enter the TL shipping landscape during periods of strong freight demand and pricing, and many leave when conditions turn sour.

For most TL carriers, economic profits evaporate during prolonged periods of soft freight demand, as the industry is price-competitive and rates have seen significant variability over the past decade amid several mini freight cycles. In 2020 and 2021, truckload industry spot and contract rates soared to historic highs, and Knight’s returns on invested capital jumped into the midteens. But rates corrected throughout 2023 and remained depressed in 2024 and 2025 on muted retail sector inventory restocking, sluggish industrial sector demand, and excess industry capacity. Thus, Knight and its peers saw margin and ROIC normalization over the past few years.

The legacy Knight truckload operations historically ranked among the most efficient and profitable carriers in trucking, with an average OR in the mid-80s before the Swift merger.

Over the long term, e-commerce growth should provide incremental demand tailwinds for Knight's nascent LTL division (more-frequent but smaller shipments).

Yellow's bankruptcy tightened up the LTL industry supply/demand equation, strengthening most carriers' medium-term pricing power.

While industrial end markets are finally improving, economic fallout from US tariffs or an oil price shock could restrict demand recovery in 2026.

Secular constraints on the driver pool will probably keep upward pressure on wages and recruiting costs on average over the longer term.

Most of the large high-quality LTL carriers have started expanding their terminal footprint in recent years. This dynamic raises the risk of industry overcapacity for the LTL niche at some point.