USX - Knight-Swift's big deal for U.S. Xpress attracts praise from analysts

2023-03-22 10:54:25 ET

Ripples are still being felt in the trucking industry from the announcement on Tuesday that Knight-Swift Transportation Holdings ( NYSE: KNX ) would acquire U.S. Xpress Enterprises ( USX ) for a total enterprise value of $808M.

The reaction from Wall Street to the deal has been largely positive. UBS analyst Thomas Wadewitz said the acquisition adds a meaningful EPS lever for KNX and puts it on a reasonable path to $1.00 per share of accretion. "KNX's agreement to buy USX provides a significant EPS lever in 2024 that should be more powerful when a cyclical upturn in the truckload cycle takes place," he noted. KNX's strong TL acquisition track record and learnings from the Swift deal in 2017 provide UBS with confidence it can drive strong improvement in the USX part of the business. The firm kept a Buy rating on KNX.

Bank of America analyst Ken Hoexter described the KNX acquisition play a tactical and accretive move. The firm also expects strong post-merger synergies. "While expectations were for KNX to focus on LTL acquisitions, this return to its base for 0.4x revenues (USA Truck bought by Deutsche Bahn for 0.6x revenues), and KNX’s historic ability to improve returns, should generate strong value," noted Hoezter. The deal synergies are forecast by BofA begin in 2024 for KNX at $0.15 per share and climb to $0.70 in 2025. A Buy rating from BofA on the trucking stock was kept in place.

Meanwhile, Morgan Stanley analyst Ravi Shanker said the Knight-Swift ( KNX ) deal for US Xpress ( USX ) will unlock the next chapter in the growth story. The deal price was called reasonable even if it came at a 300% premium and is not expected to stretch KNX's balance sheet to an uncomfortable level. Overweight-rated KNX is Morgan Stanley's top overall sector pick with its scale and exposure see making it the biggest beneficiary of structural supply headwinds.

Knight-Swift Transportation Holdings ( KNX ) traded up 2.09% in Wednesday morning trading and U.S. Xpress ( USX ) dipped 0.33% to $5.96 vs. the deal price of $6.15.

Seeking Alpha's The Value Investor has a more detailed breakdown on the KNX-USX deal.

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