Multiple Raised Targets While Desjardins Securities analyst Benoit Poirier thinks 2024 “looks to be another challenging year” for TFI International Inc. , he expects investor enthusiasm to continue, pointing to two “exciting new wrinkles.”
“Despite stronger-than-expected 4Q results, after listening to the conference call, we still firmly believe that EPS guidance will likely be US$7.007.50. This was reinforced by the fact that 1Q is off to a bad start, by continued U.S. LTL [less-than truckload] operating issues, and by fewer buybacks (removed from our numbers). We are not surprised at the overly constructive share price response to the lack of guidance as investor enthusiasm is being driven by the plethora of upcoming value-creation catalysts at TFII’s disposal.”
On Thursday, the Quebec-based transport and logistics company reported stronger-than-expected fourth-quarter results, including total revenue of US$1.969-billion and adjusted fully diluted earnings per share of US$1.71. Both exceeding Mr. Poirier’s estimates ($1.894-billion and $1.57) and the Street’s forecasts (US$1.956-billion and US$1.67).
However, the release drew a muted response from investors on Friday with shares rising just 0.6 per cent after the company did not release guidance for the current fiscal year.
“TFII pointed to uncertainty surrounding 1Q (bad weather), LTL peers also not providing guidance and that it will soon be in a better position to determine whether the DSKE acquisition will be 2024 EPS–neutral or not,” said Mr. Poirier. “Management clarified that it should be able to provide guidance alongside 1Q results at the end of April and that EPS guidance will likely start with a ‘7′ and not a ‘6′. We have decided to maintain our conservative stance for 2024 and now forecast EPS of US$7.18 (was US$7.30). "
“Management opens the door to a P&C sale and the potential for the TL spin-off to include other specialized TL players. Following the spinoff, TFII will be left with LTL, logistics and P&C—but with the P&C segment being Canada-only, the smallest out of the three and facing restricted growth, it does not seem to fit. UPS and FedEx would be the most likely buyers given the attractive profitability, ROIC and density in Canada. We do not see it selling the business for under 1112 times FY2 EBITDA (we calculate a sale would generate US$1.81.9-billion of cash for TFII, nearly wiping out the whole of its post-DSKE debt).”
Reaffirming TFI as his “favourite transportation name,” Mr. Poirier increased his target for its shares to $216 from $208 with a “buy” rating. The average is $190.22.
“We continue to like the name as we see sizeable potential opportunities for value creation with a plethora of catalysts on the horizon (eg TL spin-off, P&C sale, LTL & logistics M&A, ample room for operational streamlining, dividends and buybacks),” he said.
Elsewhere, other analysts making changes include:
* National Bank’s Cameron Doerksen to $209 from $183 with a “sector perform” rating
“We believe a better freight market backdrop could materialize in the second half of 2024, and we also see earnings growth tailwinds for the company in 2024 driven by margin improvement in the U.S. LTL segment,” said Mr. Doerksen. “Incremental earnings growth should materialize in 2025 as TFII integrates the pending acquisition of Daseke. Nevertheless, we maintain our relatively neutral stance for now.”
* Scotia’s Konark Gupta to $225 from $215 with a “sector outperform” recommendation.
“TFII confirmed our thesis that growth would resume this year, driven by organic growth in LTL and integration of recent acquisitions, which could drive double-digit EPS growth this year and potentially stronger growth in 2025,” said Mr. Gupta. “In addition, the company remains focused on M&A (including a larger transaction) and committed to unlocking value by spinning off TL. We believe this combination of strong earnings CAGR and value creation, along with continued solid FCF generation, will drive shares to new highs over the next few years. We have made minor tweaks to our forecasts, particularly to Q1 estimates due to challenging weather.”
* BMO’s Fadi Chamoun to US$140 from US$130 with a “market perform” rating.
“With pandemic tailwinds behind us and it being almost three years since the acquisition of UPS Freight, TFII’s focus is increasingly turning to operational execution of its U.S. LTL network,” said Mr. Chamoun. “We expect this to remain the largest focus for investors and to a smaller degree the eventual spinoff of its specialized trucking operations. We make minor changes to our estimates and reiterate our Market Perform rating.”
* Cormark Securities’ David Ocampo to $200 from $180 with a “market perform” rating.
* TD Cowen’s Jason Seidl to US$178 from US$170 with an “outperform” rating.
* CIBC’s Kevin Chiang to US$167 from US$158 with an “outperformer” rating.