National Bank While National Bank Financial analyst Cameron Doerksen remains “constructive” on TFI International Inc. , he is maintaining his “more neutral view” on its stock, seeing it as “close to fair valuation, at least in the near term.”
“Trucking industry peer group multiples based on current year forecasts are running near peak levels (especially for U.S. LTL [less-than truckload] peers) as the stocks anticipate a more constructive freight market later this year and into 2025,” he said. “Indeed, the current FY1 EV/EBITDA multiple for the U.S. LTL peer group is 14.9 times, which is well-above the five-year average of 11.4 times and among the highest we’ve seen for the group in the past ten years (FY1 EV/EBITDA multiples during the peaks of 2021 were 16.0 times-17.0 times). Similarly, TFII currently trades at 10.8 times consensus 2024 EV/EBITDA versus the stock’s five-year average of 9.0 times and close to the 11.0-13.0 times that TFII traded at throughout 2021.
“TFII shares are trading at 21.4 times the 2024 consensus EPS estimate, which is below the weighted average peers (based on TFII’s revenue exposure by segment) of 23.8 times, but above the stock’s five-year average of 16.3 times.”
In a research report released Wednesday, Mr. Doerksen warned the Montreal-based transportation and logistics company’s first quarter of 2024 could come in “soft,” however he thinks it could be poised to benefit from an improving freight market as 2024 progresses and also pointed to several potential earnings drivers.
“Most freight and trucking industry data is still pointing to relatively soft (albeit stabilizing) market conditions in the near term (and we expect a relatively soft Q1 for TFII), but we believe a better freight market backdrop could materialize in the second half of 2024,” he said. “Although recent shipment and tonnage data has been mixed, the U.S. LTL market is showing some signs of strengthening yields as highlighted by the mid-quarter updates from several of the large LTL players as well as the recent data from the BLS.”
“TFII should benefit in 2024 and through 2025 from some company-specific earnings growth drivers. For 2024, management is targeting a U.S. LTL operating ratio of approximately 88 per cent (vs 91.0 per cent in Q4/23) driven by ongoing cost reductions, efficiency improvements and higher quality revenue. The pending acquisition of specialty truckload carrier Daseke will only have a small impact on 2024 results, but management has targeted $0.50+ in EPS accretion for 2025 from the acquisition, which we believe could be a conservative estimate.”
The analyst also expects improvements to TFII’s valuation if the management moves forward with a plan to split into two separate publicly traded companies, separating its LTL/Logistics and Truckload operations.
“Further upside for the standalone Truckload segment could also be realized if TFII can roll in additional specialty TL assets into the business ahead of or in-conjunction with a spin-off,” he said. “Our caution is that we are not convinced the market will necessarily ascribe a peer average multiple to the LTL/Logistics business in a spin-off and overall market valuations could moderate, so potential upside may be more muted. Furthermore, we do not expect a spin-off transaction to occur before mid-to-late 2025 so a company split is not going to be a near-term catalyst.”
Maintaining a “sector perform” recommendation for TFI shares, Mr. Doerksen increased his target to $222 from $209 based on his 2025 forecast.