A Multitude of Upgrades Desjardins Securities analyst Benoit Poirier continues to see “significant upside” for TFI International Inc. as it sees increased benefits from its US$800-million acquisition of UPS Freight.
After the bell on Monday, the Montreal-based transportation and logistics services provider reported second-quarter that exceeded expectations, leading several analysts on the Street, including Mr. Poirier, to raise their target prices for its shares.
Adjusted EBITDA of US$279-million easily topped both Mr. Poirier’s forecast of US$202-million and consensus projection of US$219-million. Adjusted fully diluted earnings per share of US$1.44 also easily beat estimates (98 US cents and US$1.00).
“TFII is bullish for the remainder of 2021, noting that robust market conditions should lead to strong financial results. That being said, TFII highlighted that the ongoing integration of UPS Freight would help the company continue to generate strong results even if market conditions were to soften at some point,” said Mr. Poirier.
TFII is now targeting adjusted EPS of US$4.50– $4.60 in 2021, up from US$3.80–4.00 and above the Street’s US$4.01 projection, and free cash flow of US$550–575-million, rising from US$475–525-million and also well above the consensus of US$453-million.
“After only two months under TFII’s ownership, UPS Freight delivered an impressive performance with an adjusted OR of 90.1 per cent, significantly better than management’s 96–97-per-cent target within the first year post-closing,” the analyst said. “That being said, management highlighted that UPS Freight’s results are quite volatile from one quarter to another. More specifically, TFII noted that 2Q results are the strongest for the business, followed by 3Q and 4Q, while 1Q is generally the weakest. Management will be hard at work throughout the remainder of 2021 to improve the cost structure while also ensuring that it focuses on the profitable business (‘freight that fits’). Management is confident that the business will generate a sub-90-per-cent adjusted OR within the next 4–6 quarters. We remain quite conservative and have factored in only a 93-per-cent adjusted OR in 2022 and 90 per cent in 2023 for the division. However, we are confident that the asset could generate an 85-per-cent OR within a few years,, especially considering the strong performance of the Canadian LTL segment (77.9 per cent adjusted OR in 2Q alone) despite the more challenging market conditions in which it operates.”
After raising his financial projections in response to the “robust” results and revised 2021 guidance, Mr. Poirier increased his target for TFI shares to $146 from $124, maintaining a “buy” recommendation. The average target on the Street is $115.41.
Other analysts making target adjustments include:
* BMO Nesbitt Burns’ Fadi Chamoun to US$110 from US$100 with a “market perform” rating.
“Underlying demand and pricing conditions remain very strong and suggest further upside potential to the EPS guide. Moreover, the quicker pace of integration of recent acquisitions and associated profitability improvement accelerates de-leveraging and opens up an opportunity to restart M&A,” he said.
* Scotia Capital’s Konark Gupta to $150 from $120 with a “sector outperform” rating.
“TFII reported a solid quarter, driven by a strong performance at the recently acquired UPS Freight and pricing tailwinds on capacity tightness. The company also raised EPS and FCF guidance, exceeding our prior expectations, but we still see potential upside in guidance from stronger organic trends and/or future M&A. We have materially improved our EPS outlook (above guidance) and have slightly expanded our EV/EBITDA multiple to 9.0 times (was 8.5 times) to reflect further upside potential to our estimates as TFII continues to execute well on its growth strategy,” said Mr. Gupta.
* National Bank Financial’s Cameron Doerksen to $144 from $137 with an “outperform” rating.
* TD Securities’ Tim James to $150 from $140 with a “buy” rating.
* Stephens’ Jack Atkins to US$124 from US$114 with an “overweight” rating.
* Cowen and Co.’s Jason Seidl to US$112 from US$95 with an “outperform” rating.
* RBC Dominion Securities’ to US$126 from US$107 with an “outperform” rating.
* Credit Suisse’s Allison Landry to US$122 from US$102 with an “outperform” rating.
* CIBC World Markets’ Kevin Chiang to US$123 from US$106 with an “outperformer” rating.
* JP Morgan’s Brian Ossenbeck to US$127 from US$100 with an “overweight” rating.