BNS Scotia Capital’s Konark Gupta thinks the recent selloff in shares of TFI International Inc. is “likely overdone” even though freight recession risks continue to linger.
“TFII is down 22 per cent since March 22, in line with U.S. comps (ODFL, SAIA, and KNX), underperforming Mullen , TSX and S&P 500 by 20 per cent points as well as Class 1 rails by 16 percentage points,” he said. “While investors may be fearing a downturn, based on the yield curve and other macro indicators, we believe TFII and its U.S. peers are underperforming other economically-sensitive stocks as spot rates are falling and industry experts are painting a bleak picture. We understand the risks given the cycle tends to last 2-3 years, justifying the multiple compression. However ... we have reasons to believe that TFII can potentially grow during a downturn, similar to the past 15 years.”
Mr. Gupta “cautiously” trimmed his 2022 earnings per share projection to $6.24 from $6.48, below the company’s guidance, and 2023 and 2024 by 10 per cent (to $7.17 and $7.96, respectively) to assume “potential headwinds.”
“We still forecast double-digit EPS growth annually. While our initial cuts may prove conservative, they can also prove aggressive if TFII goes big on M&A. It can also repurchase more shares,” he said.
Keeping a “sector outperform” rating for TFI shares, Mr. Gupta reduced his target to $135 from $165, The average is $146.33.