Our High Conviction Buy
TFI International Inc. TFII-T: C$144.46; BUY 12-Month Target: C$180.00
We believe TFI International has significant revenue enhancing, cost saving and strategic opportunities, which combined with potential capital deployment through the middle of the decade suggest even more long term upside than our current view. Our forecasts through 2025 assume the deployment of approximately $2.7 billion towards capital expenditures, M&A, share buybacks, and dividends. Management recently outlined a scenario for capital deployment well in excess of this value, and one that we believe has the potential to add incremental long term EPS of $4.00- $5.00, and much greater growth in the dividend than currently anticipated.
Management recently provided 10-year average operating ratio targets for each segment. In our view, targets are reasonable, aligned with our expectations, and could potentially reflect some conservatism given the company's opportunities for efficiency initiatives and track record of focusing on profits and returns over volume and revenue. Averages reflect the relative strength of results in 2022, the potential for some normalization and economic pressure in 2023, and long term averages that are notably stronger than our 2024 and 2025 assumptions for LTL and Logistics.
We expect that economic uncertainty and equity market concerns regarding the downside risk to earnings in 2023 could impede TFI's multiple expansion in the short term. However, we believe that the 30% dividend increase announced in Q3/22, share repurchases, 16% higher adjusted EPS potential in 2024 relative to 2022, and FCF power that remains well over $8.00/share will drive multiple expansion and significant share price upside within a 12-month investment horizon.