National Bank Despite its shares enduring “a rough start” to 2022, like its trucking peer group, end markets remain “very supportive” for TFI International Inc. , according to National Bank Financial analyst Cameron Doerksen.
“Of note, the latest spot truck pricing (December) from DAT showed that U.S. dry van rates were up 22.0 per cent year-over-year with contract rates up 23.6 per cent year-over-year,” he said. “A very tight market for drivers will likely limit the supply of trucking capacity for an extended period, which should be supportive of pricing through 2022.”
“Regardless of end-market fundamentals (which remain robust for the LTL industry), we believe ongoing margin improvement at the TForce Freight LTL operations will be a major driver of earnings growth over the next two years. We are very confident that a sub-90-per-cent operating ratio can be achieved for the business on a full-year basis. We forecast TFII’s net-debt-EBITDA at a very comfortable 1.7 times at year-end 2021 and estimate free cash flow in 2022 at $760 million, despite it being a capex heavy year, so the company remains well-positioned to continue M&A in 2022.”
After trimming to his forecast for both the fourth quarter of 2021 and the first half of 2022 to account for “some near-term pandemic-related impacts on revenue,” Mr. Doerksen cut his TFII target to $153 from $160 following its 12.7-per-cent slid thus far in January. The average on the Street is $132.24.
However, keeping an “outperform” rating for its shares, he said the company’s relative valuation is now “attractive” for investors.
“On our 2022 forecast (which does not fully reflect the potential upside for the company’s LTL segment) TFII is trading at 15.9 times P/E [price-to-earning] versus the weighted average comparable multiple of 18.3 times,” he said. “TFII’s revenue is now nearly 60 per cent derived from its LTL and Logistics segments where comparable P/E multiples are 20 times-plus.”