Our view: TFII delivered a very strong Q2 result, with EBITDA substantially better than consensus — and even above our street high estimate. Moreover, the company significantly revised higher its guidance to levels well above prior consensus — while still leaving (in our view) plenty of room for upside. Accordingly, we expect the positive sentiment on the stock to continue, and to reflect this, we are increasing our target valuation and our PT goes to $126 (from $107). Reiterate TFII as a top five idea in our coverage universe today.
Key points:
Very strong Q2. TFII reported adj. EBITDA of $280MM (exc. CEWS), well above consensus $224MM and above our street-high $266MM. On an adj. EPS basis, Q2 came in at $1.40 (exc. CEWS), ahead of consensus $1.01 (RBC $1.15). The variance largely came in higher revenue, at $1.65B vs. our $1.53B, while margins of 17% were in-line with our 17.4%. At a divisional level, results outperformed virtually across the board, with P&C, LTL and TL all contributing to roughly the same level of outperformance, while Logistics came in-line. Overall, a very impressive quarter for the company.
Guidance raised above consensus — but still likely conservative. Mgmt increased its guidance for 2021 to $4.50 to $4.60 (from prior guidance of $3.80 to $4.00) and significantly above prior consensus of $4.21 (and in-line with our prior $4.57). While the new guidance was solid, given the extent of the Q2 beat it implies lower sequential EPS, which mgmt indicated was reflective of conservatism. Accordingly, we view the likelihood of upside as significant.
Deals could be back on. With UPS Freight integration well ahead of schedule, mgmt indicated they may begin to kick-start acquisitions once again — sooner than originally planned. We see this as a meaningful positive to sentiment and supports our high conviction on the stock.
Increasing estimates — revaluing higher. Our 2021 EPS estimate was previously well above consensus, and as a result we expect consensus to come up significantly. We are holding our Q3 and Q4 estimates unchanged and adjusting our 2021 EPS higher as a result of the better Q2. As a result, our 2021 EPS goes to $4.83, which while above the top end of the range, our own estimate still implies a sequential EPS decline which we consider conservative. While we are also holding our 2022 estimate of $5.94 unchanged, we are increasing our P/E target multiple to 20x (from 17x) reflective of the upside potential. As a result, our target goes to US$126 (from US$107).
Our view. TFII has been delivering on targets ahead of schedule, significantly raising guidance, all while keeping room for upside. With cash flow strong, leverage low (<2x), and the prospect of more M&A, we expect positive sentiment on the stock to remain in place. Accordingly, we remain constructive on TFII and reiterate it as a top five idea across our coverage universe.