TFI International Inc.
(TFII-T) C$145.39
Share Price Appreciation Appropriately Discounts Strong Outlook Event
We are increasing our TFI target price to C$155.00 from C$150.00 and moving our recommendation to HOLD from Buy, due to share-price appreciation and the limited remaining return to our revised target price.
Impact: NEUTRAL
We have made minor adjustments to our modelling assumptions, the net impact of which is immaterial to our forecasts. The increase in our target price reflects an increase in our valuation multiples, partially offset by a small reduction in valuation- period Adjusted EBITDA and EPS forecasts.
Although we believe that TFI is well-positioned to take advantage of future opportunities from its current portfolio of transportation services, the recent acquisition of UPS Freight, and additional M&A, we believe that the share-price return of approximately 135% and the increase in its forward EBITDA multiple of approximately 45% since initiating our BUY recommendation on October 30, 2020 have appropriately accounted for the positive outlook. For long-term investors, we believe that there will be attractive risk-adjusted upside beyond our current 12- month target. The increase in our target price is due to a slight increase in our target valuation multiples (target EV/EBITDA to 11.0x from 10.0x, and target P/E to 21.0x from 20.0x), which we believe is prudent given sector valuations, the recent upward bias to current TFI forward valuations, and anticipated TFI growth relative to comparables. We have reduced our financial forecasts by what we consider to be an immaterial amount due to an adjustment in our assumed revenue seasonality through the rest of 2021, which also affects future years.
We recognize the potential for TFI's valuation to continue pushing beyond historical precedents and what we would consider to be reasonable levels, given the strength in the overall freight market. However, at this time, it is difficult to predict where valuation will ultimately peak, and there is limited analytical support to justify even higher multiples at this time, in our view.
TD Investment Conclusion
We believe that TFI's above-average historical and forecast growth, prudent financial leverage, and track-record of shareholder value creation, together with the strong pricing environment and consumer demand outlook are appropriately reflected in TFI's current valuation.