Revised Targets Following recent share price depreciation, Desjardins Securities’ Benoit Poirier sees “a compelling proposition at current levels” for TFI International Inc. (TFII-N, TFII-T), believing investors are not paying potential upside.
He was one of a group of equity analysts on the Street to reduced their target prices for shares of the Saint-Laurent, Que.-based transportation and logistics company following last Thursday’s release of better-than-expected quarterly results, due largely to concerns about valuation multiples in the trucking sector.
“We are very pleased with TFII’s 1Q results, which showed once again that TFII is ideally positioned to unlock shareholder value,” said Mr. Poirier. “We do not see enough signs to call for a freight market bloodbath, and in the event of a slowdown, TFII’s robust diversified business segments across two countries should provide extra protection.”
TFI reported fully diluted earnings per share of US$1.68, topping both Mr. Poirier’s estimate of US$1.20 and the consensus projection of US$1.29. It also raised its full-year 2022 EPS guidance to US$6.50–6.75 from US$6.25– 6.50, which Mr. Poirier called a “conservative target.”
“We expect some positive revisions through the rest of 2022 as TFII delivers on the multiple value creation opportunities that are mostly independent of market conditions,” he said.
Despite a “fall” in spot rate and rise in fuel costs, the analyst sees TFII as “well-protected,” noting: “While the market has reacted negatively, it is important to note that TFII’s U.S. truckload business is 85–90-per-cent contractual and represents less than 10 per cent of its total revenue. CEO Alain Bdard stated that contract rates are still strong and he believes smaller trucking companies will be hit much harder if a slowdown does occur.”
Reiterating his bullish stance and reaffirming TFII as his “preferred transportation stock for 2022,” Mr. Poirier reduced his target to $170 from $173 with a “buy” rating, despite raising his 2022 and 2023 EPS estimates. The average is $142.14
“We continue to see significant upside potential at TFII as it successfully executes on the optimization of TForce Freight while remaining active with its M&A strategy,” he said.
Others analyst making target reductions include:
* Scotia Capital’s Konark Gupta to $138 from $135 with a “sector outperform” rating.
“TFII posted a significant Q1 beat and raised guidance while maintaining a conservative tone,” he said. “The quarter was helped by a gain in the TL segment, which could continue in Q2, but it doesn’t take away the fact that TFII produced better-than-expected results across all segments, led by LTL, as solid margin execution continues. Management acknowledged concerns about falling TL spot rates but reminded that TFII is exposed to the contract market with 1,300 dedicated trucks in the U.S. Further, more than 70 per cent of its book is represented by non-TL segments which are less cyclical, and the largest segment (LTL at 45 per cent) is just scratching the surface on margin and growth. In addition, TFII is growing more active on tuck-ins and buybacks, and remains focused on its next big M&A target. We have moved our 2022E EPS up to the top end of the new guidance range, which could still prove conservative.”
* National Bank’s Cameron Doerksen to $146 from $142 with an “outperform” rating.
“We continue to see solid earnings growth for the company, even if a softer freight demand environment materializes. Valuation also remains attractive,” he said.
* CIBC’s Kevin Chiang to US$110 from US$115 with an “outperformer” rating.
* JP Morgan’s Brian Ossenbeck to US$101 from US$112 with an “overweight” rating.
Conversely, RBC’s Walter Spracklin increased his target to US$100 from US$97 with an “outperform” rating.
“TFII continued to exceed expectations with another (very)strong performance delivered in Q1 - despite the challenging operating conditions that typically occur in that quarter,” said Mr. Spracklin. “Guidance was raised again - only a quarter after having set it - and we believe that guidance to be conservative (we have brought our estimates to the high end of the range). Further, the company’s strong FCF (more than $700-milion guided) and clean balance sheet (less than 1.5 times leverage guided) provides the company tremendous optionality between ramping up M&A and buying back stock (likely see both this year). TFII remains a top idea.”