RBC With Canadian manufacturing activity expanding in the third quarter and freight pricing rising in July, RBC Dominion Securities analyst Walter Spracklin concludes there was “a solid operating backdrop” for trucking and diversified industrial companies in the third quarter.
In a research report released Thursday previewing earnings season, he said third-quarter results are likely to be “solid,” however investor sentiment will largely be determined by management commentary, pointing to rising interest rates and the potential impact on consumer and industrial demand.
Mr. Spracklin thinks Mullen Group Ltd. and TFI International Inc. as the “best-positioned” stocks heading into earnings season, increasing his forecast for both.
His earnings per share projection for TFI rose to US$1.96 from US$1.89, falling in line with the Street’s US$1.97 estimate.
“We brought higher our estimate due to read throughs from FedEx, which suggest the LTL pricing and demand backdrop remained solid during the quarter,” the analyst said. “Our 2022 estimate however remains unchanged at $8.10 and in line with consensus $8.11, but above guidance for EPS of $8.00. Our 2023 estimate is also unchanged at $7.90, in line with consensus $7.89. We introduce our 2024 estimate of $8.69, below consensus $8.97, which we note ranges from $8.27 to $10.24. We expect focus into the quarter to remain on the outlook, and with public market valuation multiples depressed, a potential pickup in M&A activity.”
Maintaining an “outperform” recommendation for TFI shares, he trimmed his target to US$113 from US$115. The average on the Street is US$121.38.
For Mullen, his EBITDA estimate is $93-million, up from $90-million previously and above the consensus on the Street of $89-million.
“Key on the call will be colour on pricing and on the outlook given the current macro backdrop,” said Mr. Spracklin, maintaining an “outperform” rating and $17 target. The average on the Street is $17.35.
For stocks he sees as “neutral-positioned” ahead of earnings season, he made these target adjustments:
* Cargojet Inc. (“outperform”) to $274 from $286. Average: $200.91.
“CJT remains our top Transportation idea,” he said. “We are leaving our Q3 EBITDA estimate unchanged at $83-million, roughly in line with consensus $85-million. Our price target decreases to $274, from $286, due to our lower target multiple, which we brought down to 12 times, from 13.5 times.”