Celadon Group, Inc. (CGI), Knight Transportation (KNX): Where Is the Growth in Transportation?

Knight’s balance sheet is clean with a total debt to equity ratio of just 0.09. Its profit margin of 6.9% is stronger than Celadon Group, Inc. (NYSE:CGI)’s, although it is significantly less than the major railroads’ profit margin.

Knight Transportation (NYSE:KNX) trades at a P/E ratio of 19.7. This is expensive as railroads with stronger barriers to entry can be purchased at more conservative valuations. Knight Transportation (NYSE:KNX) is growing and wisely focuses on short and medium haul, but currently it is too expensive.

Where Rail Shines, the Long Haul

Any investigation of the trucking industry needs to consider the actions of the railroads. Union Pacific Corporation (NYSE:UNP) is one of the largest railroads in the U.S. The changing nature of America’s transportation network can be seen in the railroad’s growth of intermodal traffic. Intermodal facilities are used to transport goods between different methods of transportation. Relative to 2011, 2012 intermodal volumes increased 2% and revenue increased 6%.

For long term investors railroads need to be evaluated with a grain of salt. Large amounts of crude oil are being transported by train due to lack of pipeline capacity. As soon as more pipelines are constructed, oil will leave railroads for lower cost pipelines. Union’s Pacific total debt to equity ratio of 0.45 is reasonable. A future decrease in crude volumes will negatively impact the firm, but it will not be fatal.

With increasing fuel costs and the desire for more efficient means of transpiration, Union Pacific has been a strong firm. Its operating margin has steadily increased over the past couple years and it has a profit margin of 18.8%. By updating their equipment, it has been able to increase efficiencies and provide more gains for shareholders. Union Pacific a strong player with large moats and a very profitable operation.

Conclusion

Trains are always in the news, but there are a few strong truckers like Knight that are good companies. Currently Knight is rather expensive as it currently trades close to 20 times annual earnings. Until it comes down in price, railroads like Union Pacific are better investments.

The article Where Is the Growth in Transportation? originally appeared on Fool.com.

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