Desjardins Securities analyst Benoit Poirier thinks the divestiture of its U.S. dedicated truckload business could be the next catalyst for TFI International Inc.’s (TFII-T) “story,” pointing to strong market conditions south of the border.
In a research note released Thursday, he estimated the sub-segment could fetch US$0.8-$0.9-billion, emphasizing the ongoing shortage of drivers and trucks as well as the strong potential for margin expansion could justify a price at the high end of that range.
“TFI management has been laser-focused on unlocking shareholder value with its M&A strategy, either via acquisitions (eg UPS Freight) or divestitures (eg waste management business for $800-million in October 2015),” said Mr. Poirier. “Ultimately, we believe the robust market conditions in the U.S. could enable management to opportunistically divest of the TL business to improve its ROIC [return on invested capital] while deploying capital toward more strategic/appealing sectors such as LTL and last mile.”
“Other avenues for value creation include: (1) successful integration of UPS Freight with an adjusted OR of 85 per cent by 2024; (2) resumption of the M&A strategy in attractive markets such as LTL and logistics; and (3) organic growth of the last mile business in North America.”
Citing its “strong potential for value creation,” Mr. Poirier increased his target price for TFI shares to $158 from $146, maintaining a “buy” recommendation. The average on the Street is $131.66.
“TFII remains our favourite name in the transportation sector and we recommend investors buy the shares ahead of 3Q results (October 28),” he said.