More TargetsAll over the map. GLTA
Signs of deteriorating macroeconomic conditions are starting to weigh on TFI International Inc. said RBC Dominion Securities analyst Walter Spracklin.
TSX-listed shares of the Montreal-based transport and logistics company fell 6.1 per cent on Friday following the post-market release of third-quarter financial results a day earlier that the analyst deemed to be “mixed.”
“The downward pressure on TFII shares [Friday] is not overly surprising given: 1) the indications of volume softness owing to demand conditions; and 2) this is the first in-line / mixed quarter after many quarters of resounding beats,” said Mr. Spracklin. “That said, we remain constructive on TFII given 1) the self-help opportunities in continued margin enhancement; and 2) the company’s attractive balance sheet which allows it to be opportunistic with acquisitions, buyback stock, or both. Further, we have built in a mild recession into our estimates; and still see value in the shares today.”
TFI reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the quarter of US$348-million, ahead of Mr. Spracklin’s US$346-million estimate but below the consensus forecast of $364-million. Adjusted earnings per share of US$2.01 was narrowly better than anticipated (US$1.96 and US$1.98, respectively).
“Overall, there were some positives and minuses in the quarter; but at the end of a string of significant beats, [Thursday] night’s inline/slightly-below result is weighing on the stock,” he said.
“Shipment volumes in US LTL [less-than-truckload] were down 17 per cent, partly as a result of internal shedding of business (good) and partly due to market environment (bad). Pricing was up 6.5 per cent, but a good part of that was the culling of lower revenue business; suggesting the core pricing market was not as strong as the number suggests. We believe the weakness in LTL was the main reason for the negative reaction on the shares ... as it is and has been an important driver of upside to TFII in prior quarters.”
While TFI reiterating its full-year 2022 guidance, Mr. Spracklin expressed concern about 2023, prompting him to trim his estimates.
“Management is noting some weakness as we go into Q4 (off a very strong June); however the company likely had buffer built into its 2022 EPS guide, which was what allowed them to maintain the guide.” he said. “That said, the underlying conservatism that was in that number as of Q2 has likely been erased, and our prior above-guidance EPS (previously $8.10) comes down closer to the $8 guide (we go to $8.05) and we expect consensus (previously at $8.09) to follow suit. As it relates to 2023; management pointed to uncertainty and signs of softness, which caused management to defer questions around 2023. Furthermore, we are not likely to get 2023 guide at Investor Day; where management will focus more on long-term growth and margin.”
“Consistent with our revisions for other transport companies, we are now building into our estimates a modest recession in H1/23. While we believe TFII has several ‘self-help’ drivers available, which provide a degree of offset (which we have accounted for in our new estimates). Accordingly, our EPS goes to $8.05 (from $8.10) in 2022, (guidance $8.00); to $7.50 (from $7.90) in 2023; and to $8.40 (from $8.69) in 2024.”
With those changes, Mr. Spracklin lowered his target for TFI shares to US$109 from US$113 with an “outperform” rating. The average on the Street is US$118.57.
Elsewhere, other analysts making target adjustments include:
* Desjardins Securities’ Benoit Poirier to $172 from $174 with a “buy” rating.
“We see the negative market reaction to TFII’s results as a buying opportunity,” he said. “The stock is a compelling proposition at current levels, with investors not paying for potential upside. We also look forward to hearing more about the outlook for 2023 at the investor day in New York on November 10. TFII remains our preferred transportation stock for 2022.”
“We continue to see significant upside potential at TFII as it successfully executes on the optimization of TForce Freight while keeping its M&A strategy active”
* National Bank’s Cameron Doerksen to $145 from $150 with an “outperform” rating.
“Given the challenging macroeconomic backdrop and the weaker than expected performance at the company’s LTL segment in Q3, we expect the stock may be under some pressure in the near term,” said Mr. Doerksen. “However, we remain positive on the stock longer term. We lowered our forecast for 2023 to reflect our expectation that LTL margin improvement will take longer than originally expected.”
* Scotia Capital’s Konark Gupta to $158 from $160 with a “sector outperform” rating.
“Although LTL missed, due partly to macro weakness, we were pleased with overall results as the other three segments, particularly TL, beat our expectations,” said Mr. Gupta. “We maintain our Sector Outperform rating while trimming our target to C$158 (was $160) on slight 2023-24 EPS reduction. We encourage investors to take advantage of stock’s weakness ahead of potential catalysts. Management still expects a lot of margin improvement in U.S. LTL through 2024, driven by the right tools and productivity optimization. With very low leverage ratio of and solid double-digit FCF yield, TFII intends to be aggressive on buybacks and M&A in the meantime. At the debut investor day on November 10, it plans to showcase the deep bench and share strategic initiatives to create value, while potentially providing long-term guidance.”
* BMO’s Fadi Chamoun to US$100 from US$105 with a “market perform” rating.
“TFII is a higher quality business today than in the past,” he said. “That said, it is not immune to macro headwinds and its core U.S. LTL operations are proving less agile on the costs front. We have lowered our forecasts and look towards the November 10 investor day for greater clarity on F2023 and medium-term targets and strategic objectives.”
* CIBC’s Kevin Chiang to US$115 from US$127 with an “outperformer” rating.
* JP Morgan’s Brian Ossenbeck to US$112 from US$120 with an “overweight” rating.
* Cowen and Co.’s Jason Seidl to US$123 from US$120 with an “outperform” rating.