More Raised Targets Analysts are giving an enthusiastic thumbs up to trucking company TFI International Inc.’s decision to sell its CFI truckload, temp control and Mexican non-asset logistics businesses to Heartland Express Inc. for US$525 million.
Several reaffirmed their buy ratings on shares of TFI in the wake of the agreement. Scotiabank analyst Konark Gupta also raised his price target, to C$160 from C$157.
“We believe TFII’s sale of CFI’s truckload and other assets to Heartland Express will unlock value in multiple ways,” Mr. Gupta said in a note to clients.
First, the sale will help reduce the company’s interest costs and provide funding to buy back more shares.
“Further, we think the divestiture lowers its risk profile heading into a potential downturn, given the CFI assets are the most capital intensive in the portfolio, they were generating low returns, and management viewed the U.S. truckload (van) as the most susceptible to a consumer-driven downturn,” he said. “Lastly, TFII’s even stronger balance sheet should enable it to make faster progress toward larger acquisitions over time.”
Although the sale will be dilutive to EBITDA and net earnings, Mr. Gupta sees a relatively neutral, or even positive impact, on earnings per share over the next few years, as TFI will now have the funding to buy back more shares.
Desjardins Securities analyst Benoit Poirier termed the overall impact on TFI stock as slightly positive. “We are very pleased with TFII’s decision to divest and believe it is the right move given the characteristics of the TL business. This divestiture should enable TFII to improve its ROIC while deploying capital to more strategic/appealing sectors such as LTL and last mile,” he said.
“The divestiture of the US TL business makes TFII a less cyclical and capital-intensive company without affecting its full-year EPS guidance, which we view as an extremely positive sign for investors,” Mr. Poirier said. “The reduction in leverage also increases TFII’s flexibility with regard to capital allocation moving forward.”
He said the stock remains Desjardins’ favourite name in the transportation sector and recommends investors buy the shares ahead of third quarter results later this year. Mr. Poirier has a C$174 price target on the stock.
As the Globe’s Tim Shufelt reported last week, TFI’s stock has posted a return of roughly 350 per cent over the past five years, with dividends boosting that number closer to 400 per cent. Investors have been latching on to the company’s growth story, as it aims to become a North American trucking powerhouse, largely through acquisitions.