KNF

We rate Knife River Corp (KNF) as a Reduce with a composite score of 45.0/100 at a current price of $88.93. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in quality (60th percentile) and value (57th percentile), which together account for the majority of the composite score. Offsetting weakness in momentum (23th percentile) and investment (25th percentile) tempers our overall conviction. We assign a Narrow Moat rating (60/100), High uncertainty, and Standard capital allocation.

Key items to watch: momentum to confirm whether the current price trend has legs; sustainability of the current growth rate. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Knife River Corp holds a top-quartile position (#0 of 50) within the Mining sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 45.0/100 places it at rank #2802 in our full 7,333-stock universe. At $4.4B in market capitalization, Knife River Corp is a mid-cap player in the Mining space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue is growing at 49%, though momentum at the 23th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 16% (-27.1pp vs sector) narrow to operating margins of 6% (-6.2pp vs sector) and net margins of 3.0%, yielding a gross-to-net conversion rate of 18%. This conversion rate is typical for the sector, suggesting a standard cost structure without notable efficiency advantages or disadvantages.

At a current price of $88.93, Knife River Corp is trading near fair value based on current fundamentals. Our value factor score of 57/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 18.8x (a 37% premium to the sector median of 13.7x), EV/EBITDA of 14.7x (at a premium), P/B of 3.1x, P/S of 1.5x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis partially supports given strong quality metrics.

We assign a High uncertainty rating to Knife River Corp. Key risk factors include the combination of leverage (71% D/E) and thin margins (3.0% net) amplifies downside risk. The wide range of potential outcomes widens our fair value estimate and increases the possibility of permanent capital impairment. Investors considering this name should size positions accordingly and demand a meaningful margin of safety before initiating.

Specific risk factors that inform our assessment include: the combination of leverage (71% D/E) and thin margins (3.0% net) amplifies downside risk. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 45th percentile and quality factor at the 60th percentile provide a quantitative summary of the overall risk landscape.

We identify limited risk mitigants at this time, which contributes to our high uncertainty assessment. Investors should monitor for improvement in balance sheet metrics, margin stability, and business predictability that could warrant a downgrade in our risk assessment over time.

We rate Knife River Corp's capital allocation as Standard. Management has shown adequate — though not exceptional — stewardship of shareholder capital. Returns on equity stand at 16.7%, and the balance sheet is managed within acceptable parameters (D/E: 71%). Exemplary allocators typically sustain ROE above 20% and D/E below 50%; Knife River Corp falls short on at least one dimension.

There is room for improvement in optimizing the capital structure or enhancing shareholder returns. Absent a dividend, the overall capital allocation framework would benefit from either higher reinvestment returns, improved balance sheet efficiency, or increased shareholder distributions. We will monitor for signs of strategic improvement that could warrant an upgrade.

In summary, Knife River Corp receives a Reduce rating with a composite score of 45.0/100 (rank #2802 of 7,333). Our quantitative framework assigns a Narrow Moat (60/100, trend: stable), High uncertainty, and Standard capital allocation. The average factor score across quality, value, momentum, stability, and investment is 42/100.

Our analysis does not support a constructive view on Knife River Corp at this time. The combination of the current quantitative profile, high uncertainty, and standard capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.