TD Cowen names top trucking and logistics stocks amid rising costs

TD Cowen named Knight-Swift Transportation and XPO its preferred trucking and logistics picks heading into earnings, while expecting XPO to modestly exceed third-quarter expectations and show above-seasonality margin progression in Q4. Diesel prices were above $6 per gallon through September, up 14% month-to-date and 37% quarter-to-date, creating a moderate earnings headwind across the sector. Dry van spot rates excluding fuel rose 2% through September as rate declines stabilized and freight demand showed some seasonal improvement.

Analysis

The key distinction is exposure, not simply which carrier has better demand. XPO’s LTL fuel-surcharge mechanism can cushion reported revenue when diesel rises, but it is not equivalent to higher underlying profitability: pass-through timing, shipment mix, and customer response determine whether margins actually improve. Verify the surcharge-to-cost lag and ex-fuel yield in the quarter. For KNX, driver scarcity and higher operating costs can absorb rate improvement; tight capacity only helps if contract pricing catches up faster than those costs.

Over the next few weeks, earnings commentary on fourth-quarter margins and contract repricing is more actionable than broad demand optimism. Over 1–3 months, sustained ex-fuel rate stabilization would support truckload pricing; failure to convert it into realized yield would weaken the KNX thesis. Over 6–18 months, the cited 2027 rate expectations are a scenario, not an earnings catalyst, and could be undermined by capacity returning or demand slowing.

Contrarian angle: elevated diesel may look like a sector-wide earnings hit, but surcharge structures make the impact uneven—and can obscure underlying volume or yield deterioration. Conversely, surcharge revenue should not be mistaken for durable margin expansion. Without valuation, consensus estimates, or company-specific surcharge and cost data, the analyst’s preference alone is not enough to justify an outright earnings bet.

Key Decisions for Investors

• Prefer a conditional relative-value expression over a sector-wide long: consider long XPO versus short KNX into earnings only if XPO’s ex-fuel margin/yield indicators remain firm and KNX signals that driver and energy costs are outpacing realized pricing. Keep exposure modest; both names remain sensitive to freight demand.
• For XPO, wait for results or guidance to confirm above-seasonal margin progression rather than buying solely on fuel-surcharge revenue. Reassess if surcharge recovery lags diesel costs or ex-fuel yield and shipment trends deteriorate.
• For KNX, require evidence that contract-rate realization is accelerating enough to offset driver and fuel-related cost pressure before adding exposure. Falsification: weaker realized rates, worsening cost per mile, or management commentary that capacity is loosening.
• Track diesel and the spread between fuel surcharges and actual fuel expense, alongside ex-fuel rates, volumes, and margin guidance. If diesel rises without timely recovery, reduce carrier exposure; if rates strengthen while costs stabilize, the supply-tightness thesis gains credibility.