Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Knight Transportation (KNX) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Knight Transportation, Inc. is a provider of multiple truckload transportation and logistics services, which involve the movement of trailer or container loads of freight from origin to destination for a single customer. The Company operates through two segments: Trucking and Logistics. The Company operates primarily in the United States with minor operations in Canada and Mexico. The Company’s Trucking segment consists of approximately three operating units: dry van truckload (Dry Van); temperature-controlled truckload (Refrigerated) and drayage services (Drayage). The Trucking segment provides truckload transportation, including services of various products, goods and materials. Its Logistics segment consists of approximately two operating units: freight brokerage services (Brokerage) and rail intermodal (Intermodal). The Company provides logistics, freight management and other non-trucking services to its customers, through its Logistics segment.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of KNX – February 2017
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $2,613,186,402 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 2.42 | Pass | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Pass | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Pass | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | 85.20% | Pass | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 28.10 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 3.38 | Fail | |
| Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | ||||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | 2.42 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 0.16 | Pass | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 4. Dividend Record | Currently Pays Dividend | Pass | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $1.17 |
| MG Growth Estimate | 7.41% |
| MG Value | $27.22 |
| Opinion | Overvalued |
| MG Grade | C- |
| MG Value based on 3% Growth | $16.93 |
| MG Value based on 0% Growth | $9.92 |
| Market Implied Growth Rate | 9.80% |
| Current Price | $32.80 |
| % of Intrinsic Value | 120.49% |
Knight Transportation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $0.78 in 2013 to an estimated $1.17 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 9.8% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Knight Transportation revealed the company was trading above its Graham Number of $15.24. The company pays a dividend of $0.24 per share, for a yield of 0.7% Its PEmg (price over earnings per share – ModernGraham) was 28.1, which was above the industry average of 22.36. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-1.26.
Knight Transportation receives an average overall rating in the ModernGraham grading system, scoring a C-.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$1.26 |
| Graham Number | $15.24 |
| PEmg | 28.10 |
| Current Ratio | 2.42 |
| PB Ratio | 3.38 |
| Current Dividend | $0.24 |
| Dividend Yield | 0.73% |
| Number of Consecutive Years of Dividend Growth | 0 |
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Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 12/1/2016 |
| Total Current Assets | $190,191,000 |
| Total Current Liabilities | $78,650,000 |
| Long-Term Debt | $18,000,000 |
| Total Assets | $1,078,525,000 |
| Intangible Assets | $49,606,000 |
| Total Liabilities | $292,052,000 |
| Shares Outstanding (Diluted Average) | 81,140,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $1.05 |
| Dec2016 | $1.16 |
| Dec2015 | $1.42 |
| Dec2014 | $1.25 |
| Dec2013 | $0.86 |
| Dec2012 | $0.80 |
| Dec2011 | $0.74 |
| Dec2010 | $0.70 |
| Dec2009 | $0.60 |
| Dec2008 | $0.66 |
| Dec2007 | $0.72 |
| Dec2006 | $0.84 |
| Dec2005 | $0.71 |
| Dec2004 | $0.55 |
| Dec2003 | $0.41 |
| Dec2002 | $0.32 |
| Dec2001 | $0.24 |
| Dec2000 | $0.24 |
| Dec1999 | $0.20 |
| Dec1998 | $0.17 |
| Dec1997 | $0.14 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $1.17 |
| Dec2016 | $1.18 |
| Dec2015 | $1.13 |
| Dec2014 | $0.95 |
| Dec2013 | $0.78 |
| Dec2012 | $0.73 |
| Dec2011 | $0.69 |
| Dec2010 | $0.68 |
| Dec2009 | $0.68 |
| Dec2008 | $0.71 |
| Dec2007 | $0.71 |
| Dec2006 | $0.66 |
| Dec2005 | $0.53 |
| Dec2004 | $0.41 |
| Dec2003 | $0.32 |
| Dec2002 | $0.26 |
| Dec2001 | $0.22 |
Recommended Reading:
Other ModernGraham posts about the company
None. This is the first time ModernGraham has covered the company.
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Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
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