Diesel fuel is expensive, creating a bit of an issue for the logistics sector. Still, demand is improving, and Wall Street sees opportunity in big trucks and their operators.

The Iran War has pushed up energy prices. Diesel has been hit particularly hard. A gallon of diesel fuel is approaching $6, nearly double the year-ago level. Crude oil prices aren't up that much, but the fighting has taken so-called heavier crude off the market, which yields more diesel fuel per barrel, all else being equal.

Carriers generally pass higher fuel prices on to customers; still, higher fuel prices raise the cost of doing almost everything. Amazon.com, Walmart, UPS, and others mentioned rising fuel prices on their recent quarterly earnings calls.

Coming into Thursday's trading, the State Street SPDR S&P Transportation ETF was down 9% over the past month. Shares of trucking companies XPO, Old Dominion Freight Line, and FedEx Freight were off about 9%, 15%, and 14%, respectively.

But declines can represent attractive entry points for stocks. That might be the case with XPO. On Thursday, Bernstein analyst David Vernon launched coverage of XPO, Saia, and Knight-Swift Transportation with Buy ratings.

His price target for XPO is $244 a share. His targets for SAIA and Knight-Swift are $439 and $91, respectively. The targets represent roughly 25% upside for each stock from recent levels.

The call isn't all about fuel. "The core call is a structural supply reset, not a demand recovery," wrote Vernon. "The trucking industry operated below fully allocated cost for roughly 40 months, supported by cheaper used equipment and owner-operators paying themselves below market. Those funding sources are now exhausted."

He sees better profits even if demand remains flat. What's more, the Trump Administration's recent decision to limit commercial driver licenses among some immigrant groups could remove 6% to 7% of driver capacity, according to Bernstein. That's another blow to supply.

As a result, trucking contract rates should move substantially higher in the coming year, boosting carriers' profits.

Better economics for carriers can also mean better business for truck makers. On Thursday, RBC analyst Nick Housden upgraded Paccar shares to Buy from Hold. His price target went to $150 from $130. Paccar stock was up 0.5% at $122.51 in early trading, while the S&P 500 was down 0.7%.

Truck "order recovery [is] still in the early stages," wrote Housden. "With haulage companies seeing a meaningful margin improvement as [freight] rates improve, we expect them to invest further in renewing their fleets, which are currently at the oldest average level since 2014."

He sees the upcycle for Paccar lasting three to four years.

That's good news. The U.S. trucking industry was mired in a brutal three-plus-year recession starting after the post-Covid boom. Diesel prices are a headwind, but Wall Street doesn't see them disrupting the improving sector outlook.