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Investing.com --Bank of America downgraded Knight-Swift Transportation Holdings Inc to "neutral" from "buy" given a lack of catalysts and high estimates that are under pressure.  Brokerage also lowered its price objective to $46 from $66.

The firm reduced its earnings estimates on soft market conditions in truckload, less-than-truckload (LTL), and intermodal segments.

Knight-Swift's truckload operations have been hit by weaker spot rates, which have dropped to $1.50 per mile, around breakeven for truckers, from $1.65 in January.

Additionally, early Q1 weather disruptions and later shipper paralysis due to freight tariff changes have weighed on volumes.

BofA expects Knight-Swift to reduce its truckload fleet by 1.5% in the first quarter, a larger cut than the prior 0.8% estimate, bringing the total tractor count to 21,900.

Knight-Swift, the largest public truckload carrier in North America, maintains strong operating margins and management, BofA noted. However, given the prolonged freight recession and constrained earnings outlook, the firm believes a Neutral rating is now appropriate.

The firm also forecasts a 96% operating ratio in Q1, up from 95% previously, and a 94.5% target for Q2, reflecting continued cost pressures.

Beyond truckload, the LTL and intermodal businesses have also been affected, with BofA adjusting its Q1 LTL operating ratio target to 94.6% from 94.1%. The intermodal and logistics segments have experienced weaker volumes and pushback on bid-season rates.

Knight-Swift’s price target remains above its historical one-standard-deviation trading range of 14x-26x, but BofA noted that without an improvement in freight demand, spot and contract rate recovery will remain limited.

Potential upside risks include a faster-than-expected recovery in the freight cycle, which could boost rates and margins. Downside risks include continued softness in trucking rates, higher operating costs, economic weakness, and challenges in integrating U.S. Xpress.

“We are Neutral given KNX's constrained earnings rebound in the extended freight recession. Its shares are trading well above its historical range which we expect when earnings trough, yet the freight market remains subdued”

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