CIBCThese are US$ targets. GLTA
EQUITY RESEARCH
February 8, 2022 Earnings Update
TFI INTERNATIONAL INC.
An Idiosyncratic Growth Story
Our Conclusion
TFII’s share price is down ~9% YTD with concerns over “peak trucking”
weighing on the broader trucking equity space. The S&P Trucking Index is
down ~12% over this same period. TFII’s Q4 results, however, reinforced our positive view on the company given its idiosyncratic growth story and
conservative guidance for 2022. We maintain our $130 price target and
Outperformer rating.
Key Points
How Conservative Is TFII’s 2022 Guidance: TFII is guiding to 2022 EPS of
$6.25-$6.50, but we view this as conservative with the company saying as
such on its earnings call. One way to gauge how conservative TFII’s 2022
guidance is if we take its 2021 revenue and assume a steady state
environment including the following: 1) 5% organic growth reflecting the
current pricing/demand environment; 2) P&C margins of ~20% (was 24.5% in Q4/21), U.S. LTL OR of 88.5%, and U.S. TL OR of 95%; and 3) account for the full-year contribution for UPSF. Based on these parameters, we already get to the bottom end of TFII’s range. By just toggling our U.S. LTL OR by 100 bps and assuming TFI repurchases ~1MM shares this year, our inferred 2022 EPS exceeds $6.50. Given the company’s near- to medium-term margin targets, strong revenue environment and excess FCF, which can be deployed towards being more aggressive on the NCIB or towards tuck-in acquisitions, TFII is in position to exceed its guidance as we progress through this year. On the M&A front, TFII noted that it could spend ~$150MM-$300MM on tuck-ins this year, which could add another $0.10+ in EPS assuming a transaction multiple of 5x-7x.
Adding A Buck A Year: Our confidence in TFII earnings reflects the synergy opportunities from TForce Freight. The company noted that it is targeting an 80% OR in 2-3 years within this segment. If we assume 0% revenue growth in 2023 and 2024, U.S. LTL OR goes to 80% in 2024, modest margin expansion in U.S. TL and logistics, and repurchasing 1MM shares annually, we see TFII capable of adding ~$1/share to earnings annually out to 2024 (refer to the table in Exhibit 1 for our calculation). Any organic or inorganic growth opportunities would be incremental to this. This again highlights that while there is a concern on “peak trucking”, in our view TFII’s earnings trajectory is not as exposed to the marginal change in freight rates or volumes.
Valuation Upside: TFII is currently trading at ~8x our 2023 EBITDA
estimates. When we look at SAIA, TFII’s closest U.S. LTL comp in terms of OR (consensus is at 83.0% in 2023 versus TFII’s target of 80% OR in 2-3 years) it is currently trading at ~12x 2023 consensus EBITDA. We continue to see a disconnect between TFII’s earnings growth and its valuation. It is currently trading at a PEG of 0.6x on 2022E and 0.9x on 2023E. This compares to a number of TFII’s comps trading at a PEG north of 1x on 2023E