Transportation stocks seem to fly below the radar of most investors. But right now, this is one of the better performing sectors in the market.
After getting off to a weak start in 2022, these stocks have staged a strong recovery. The Dow Jones Transportation Average (DJTA) has gained 9.3 per cent so far in the current quarter (to Aug. 26), about two percentage points better than the more closely watched Dow Jones Industrial Average. Looking back a decade, the DJTA has posted gains in eight out of 10 years. Seven of those were double-digit advances.
The index is made up of 20 companies, including railways, airlines, trucking firms, car-rental firms and delivery services.
The DJTA is closely watched by many analysts as an indicator of economic direction. The fact it is currently rising is positive news and supports the view that we may avoid a recession.
We have several transportation firms on my Internet Wealth Builder recommended list. Here are updates on two of them, both trucking companies. TFI International is a Canadian company, based in Montreal. J.D. Hunt Transport is based in Arkansas and is included in the DJTA.
TFI International Inc.
Price (Monday close): $130.90
Background: This Montreal-based company (TFII-T) is a North American leader in the transportation and logistics industry. It operates across Canada, the United States and Mexico, offering package and courier service, truckload and less-than-truckload haulage, logistics and other services.
Performance: After a big drop in mid-June, when the price fell all the way to $93.63, the shares have staged a strong recovery.
Recent developments: On Aug. 22, TFI announced that it is selling its truckload, temp control and Mexican non-asset logistics businesses to Heartland Express for US$525-million.
Walter Spracklin and James McGarragle, analysts at RBC Capital Markets, said the sale clears the way for an expected major acquisition by TFI in 2023.
“We continue to view M&A as a key catalyst for the shares” and believe the announcement increases the likelihood of a deal in the next 12 to 18 months, they wrote in a note to clients. Their target price for the company’s U.S.-listed shares was raised to US$115, from US$112.
Earlier, TFI released second-quarter results that showed significant year-over-year improvement. Revenue for the quarter came in at US$2.4-billion compared with US$1.8-billion last year. For the first six months of the 2022 fiscal year, revenue was US$4.6-billion, compared with just under $3-billion a year ago. Note that the company reports in U.S. dollars.
Adjusted net income for the quarter was US$241.1-million (US$2.61 per diluted share). That compares with $137.2-million (US$1.44) in the same period of 2021. First half adjusted income was US$398.7-million (US$4.28), compared with US$210.9-million (US$2.21) the year before.
Dividend: The stock pays a quarterly dividend of 27 US cents a share (US$1.08 a year) to yield 1.1 per cent at the current price.
Outlook: The company is generating impressive results and, with the recently announced sale, appears to be positioning itself for a major acquisition.