The full truckload market is facing pressures from higher operating costs this cycle in terms of new equipment, however there should be some offset as maintenance costs on older equipment declines, and depreciation will be spread out over the useful life of the equipment, says Todd C. Fowler, a Vice President and Equity Research Analyst with KeyBanc Capital Markets Inc.
“So as carriers are replacing equipment, not necessarily growing their fleets, but trading for new vehicles and replacing old equipment to bring down the fleet age, we know they are going to have higher operating costs and depreciation as they bring new trucks into their fleets,” he said.
Fowler names Knight Transportation, Inc. (KNX) as a favorite trucking choice, although it is out of favor with the Street and an underperformer this year. KNX has been affected by some company-specific issues, including investments related to growth initiatives impacting margins, while the installation of electronic on-board recorders negatively impacted their utilization, he said.
“Also, they have more exposure to the western United States, which wasn’t the strongest market this year. We think if investors understand these issues going into 2012, it’s not anything structural with the company, they have easy comparisons as they anniversary some of these issues, we would expect to see the stock perform better especially as fundamentals improve,” Fowler said.
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