Citi Upgrades Knight-Swift and Saia to Buy on Stock Pullback

Citi upgraded Knight-Swift Transportation and Saia to a Buy rating on Thursday, reversing recent downgrades after a pullback in the trucking stocks created what the bank sees as sufficient upside potential. In a note to clients, analysts also raised their rating on Old Dominion Freight Line to Neutral.

Upgrades and Price Targets

The rating changes reflect a more optimistic view on the stocks' valuations following their recent performance. Citi's price targets, however, were largely held steady, signaling that the upgrades are primarily driven by the lower share prices rather than a fundamental change in outlook.

• Knight-Swift (KNX): Upgraded to Buy, with the price target maintained at $90.
• Saia (SAIA): Upgraded to Buy, with the price target trimmed to $488 from a previous $524.
• Old Dominion (ODFL): Upgraded to Neutral, with the price target maintained at $228.

Sector Outlook Brightens

Citi anticipates that second-quarter earnings for transport companies are "likely to be among the strongest in years." The bank's analysts attribute this positive forecast to "significantly tighter capacity conditions coupled with moderately improving demand."

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This environment is expected to lead to "solid year-on-year EPS gains reflecting higher truckload rates and margin recovery," according to the note. Citi also anticipates robust outlooks from management teams, signaling continued strength in the coming quarters.

Valuation Concerns Remain

Despite the upgrades, Citi stated it "remains concerned on valuations across much of our coverage," suggesting that upside for shares may be "far more modest" in the second half of the year compared to the first. However, the analysts acknowledged that "it is difficult to remain negative into rising earnings."

Looking forward, Citi believes the next phase of the rally will be defined by management's ability to capitalize on higher rates and improve margins without facing significant inflationary cost pressures or service issues. The firm named TFI International as its top truck pick and also highlighted Union Pacific among rail operators for its "attractive relative value."