TSX:TFII - Post Discussion
Post by
retiredcf on Apr 21, 2021 9:10am
TD
Q1/21 Trucking Transportation Preview TD Investment Conclusion
Our trucking transportation coverage group begins reporting Q1/21 results after market close on April 27. We have made minor revisions to our forecasts primarily to reflect updated foreign exchange, economic growth, and fuel price assumptions. Due to updated FX assumptions, our target for TFI declines to $110, from $115, while our BUY recommendation remains unchanged. Our $42 target and HOLD recommendation for Andlauer Healthcare (AHG) are unchanged.
Our Q1/21 EBITDA forecasts are in line with consensus and represent y/y growth of 7% for TFI and 24% for AHG. While we view AHG's business quality and growth potential very positively, we believe that TFI's valuation and potential opportunities from its anticipated acquisition of UPS Freight make it more compelling at current levels. We believe that trucking transportation stocks offer greater certainty and less volatility relative to aviation-related stocks that could get a greater short-term lift from the eventual loosening of travel restrictions.
Andlauer Healthcare's Q1 growth reflects one month of contribution from the Skelton acquisition, broader industry stability, and the same company-specific factors that contributed to the revenue growth in Q4/20 (new Brampton facility in mid-2020, acquisitions that closed in Q4/20). Organic growth is forecast to be 2.7% y/y in Q1/21, a moderation from the 5.9% in Q4/20. We continue to believe that Andlauer will benefit from its participation in the distribution of COVID-19 vaccines in certain Canadian markets, but that the benefit will be small relative to the size of the business. We believe that AHG's margin and capital efficiency, relative FCF generation, and exposure to an economically resilient industry are positive investment attributes.
TFI's Q1/21 results are expected to continue to benefit from the strong demand for freight transportation, particularly from the explosion of B2C e-commerce-driven volume resulting from the pandemic. Although this has been accompanied by B2B related LTL volume pressure, we believe that the company overall is seeing a significant benefit that is expected to continue. We believe that the benefits in 2021 and 2022 from an economy emerging from the pandemic will more than offset any normalization of B2C volume. Industry volume and pricing indicators show continued strength in Q1/21, with volume up high single-digits and spot rates up more than 25%. Although it takes time for contract rates to be reflective of the direction of spot rates, we believe that this will gradually benefit TFI's revenue and margin over the course of 2021. We forecast FCF (TFI definition) of $69 million, which should support TFI's current leverage ratio at what we consider to be a reasonable level (1.8x) in advance of the expected closing of the US$800 million UPS Freight acquisition in Q2/21.
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