(Bloomberg)—Heartland Express Inc. shares are outpacing those of Knight Transportation Inc. as investors bet Heartland’s earnings growth will accelerate, while its trucking competitor’s slows. Shares of North Liberty, Iowa-based Heartland have led Knight’s by 7 percentage points since May 21, when Heartland’s stock price fell near a five-year low relative to Knight’s—see chart. Heartland’s stock closed at $21.78 on June 5, while Phoenix-based Knight’s was at $29.61. “We’re at an inflection point now,” as some traders start to bet Heartland’s earnings weakness will abate while Knight’s profitability tailwind could dissipate, said Timothy Ghriskey, chief investment officer at Solaris Asset Management LLC in New York, who helps manage about $1.5 billion in assets. This pair trade—long Heartland and short Knight—is attracting investment even as trends in earnings estimates for 2015 have yet to reflect such optimism, he said. Heartland’s recent outperformance comes after the stock “suffered a bit” in the prior 16 months, trailing Knight by 62 percentage points, said Todd Fowler, an analyst at KeyBanc Capital Markets Inc. in Cleveland. Driving much of this relative weakness: some investors were disappointed that Heartland’s acquisition of Gordon Trucking Inc. didn’t generate the profitability boost they initially expected, he said. —Since the acquisition was completed in November 2013, Heartland’s earnings have been below the consensus of analysts’ estimates in five of the last six quarters, according to data collected by Bloomberg. Spot Pricing Meanwhile, Knight had “the wind at its back” during that period as robust gains in spot pricing—the rate customers pay for immediate trucking services—contributed to strong earnings growth, Fowler said. The company’s earnings disproportionately benefited from the “mid-teens” rise in such pricing last year because about 25 percent of its volume is priced in the spot market, compared with the industry average of up to 10 percent, he said. —Knight’s earnings met or exceeded the consensus of analysts’ estimates in its past six quarters, Bloomberg data show. “Investors couldn’t pick two better stocks to compare and contrast right now,” Fowler said. Fed’s Survey Industrywide, the picture is mixed, the Federal Reserve found in its Beige Book business survey released June 3. Demand for trucking services was “brisk” in the New York district and expanded in the Atlanta area, while declining in the Philadelphia region, the Fed survey showed. Analysts’ estimates for this year still show more optimism for Knight’s earnings growth than for Heartland’s. The consensus of analysts’ estimates for Knight’s 2015 earnings has risen 4.2 percent to $1.50 a share since April 21, the day before it released first-quarter results, according to data collected by Bloomberg. That compares with a 6.5 percent decline to $1 a share for Heartland during the same period. The recent decline in Heartland’s 2015 earnings estimate “is clearly not an issue at this point,” Ghriskey said. Rather, some investors are now betting the outlook is going to change next year, with Heartland’s earnings growth accelerating while Knight’s slows. 2016 Forecasts —Heartland’s earnings are forecast to grow 12 percent in 2016, up from 4 percent this year, based on the consensus of analysts’ estimates. —Knight’s profitability is estimated to increase 14 percent next year, down from 20 percent in 2015. A “less robust” spot pricing market—low single-digit gains, excluding fuel surcharges—is largely to blame for the slowdown in earnings growth, Fowler said. He maintains a sector weight recommendation on the company partly because it’s “well- managed.” Tight capacity in the spot market has shown signs of easing which may lower pricing, as suggested by the 52 percent decline through May 29 in the Internet Truckstop’s Market Demand Index - - see chart—since June 6, 2014, according to Lee Klaskow, an analyst with Bloomberg Intelligence. Fowler sees two reasons the Gordon acquisition will benefit Heartland’s profitability in 2016, underscoring his overweight recommendation. —The company will replace most of its acquired truck fleet by the end of this year, reducing maintenance and repair expenses. —Freight revenue could rise 7 percent next year after declining about 4 percent this year as Heartland re-negotiates some of Gordon’s existing contracts, he estimates. Ghriskey offers another reason for optimism about Heartland: The stock-price ratio of Heartland relative to Knight formed a so-called triple-bottom last month, falling to a similar trough reached in 2005 and 2010—see chart. Gains since then are a bullish technical indicator, suggesting “there’s a good possibility this stock-price ratio will continue to rise,” Ghriskey said. —With assistance from William Maloney in New York. To contact the reporters on this story: Anna-Louise Jackson in New York at [email protected]; Anthony Feld in New York at [email protected] To contact the editors responsible for this story: Anthony Feld at [email protected] Mark Rohner, Gail DeGeorge