Environment Our Conclusion
On the back of comments we heard from various freight transportation
companies during this past conference season, we have adjusted our
estimates for TFII to reflect a softer environment in its P&C and TL segments
relative to our original expectations. Our Q1 EPS moves to $1.27 from $1.61
and below consensus which currently sits at $1.45. We expect TFII to guide
to 2024 EPS of $7.00-$7.25 when it reports first quarter results. While the
cyclical recovery continues to be pushed out, TFII remains one of our top
picks given its company-specific growth levers, our positive outlook on the
LTL segment, and the potential around splitting the company into two which
would remove the Holdco discount. We also remain optimistic that the
broader freight cycle is on the verge of an upcycle. Our price target moves
from $167 to $175, and we keep our Outperformer rating.
Key Points
Taking Down Q1 Estimates To Reflect Challenging P&C And TL
Environment: On the back of comments we heard from various freight
transportation companies during this past conference season, we have
adjusted our estimates for TFII to reflect a softer environment in its P&C and
TL segments relative to our original expectations. For Q1, we have reduced
our operating income expectations for P&C and TL by 27% and 16%,
respectively. We have also reduced our Q1 LTL operating income forecast
by 23%, but this primarily reflects the impact of seasonality with our full-year
expectations broadly unchanged. On P&C, it remains a challenging
environment and we expect this to weigh on pricing and volumes, resulting in
a quarterly OR just over 80%. For TL, we had expected a cyclical recovery to
begin to take hold in Q1 which has not been the case (though the silver lining
is it does not appear the environment is getting worse). Overall, our Q1 EPS
moves to $1.27 from $1.61 and is below consensus which currently sits at
$1.45.
2024 EPS Guidance Expectations: We have reduced our 2024E EPS to
$7.18 from $7.57 with consensus at $7.43. We expect TFII to provide its
2024 guidance when it releases Q1 results and expect the company to target
$7.00/share-$7.25/share in earnings this year. We would also expect TFII’s
outlook to reflect the current macro conditions, with any cyclical recovery in
the freight cycle as upside to guidance. In addition, we have adjusted our
model to reflect the contribution from DSKE starting in Q2 (previously we had
this beginning in Q3) given the deal recently received shareholder approval.
We also see TFII guiding to FCF of $716MM in 2024. Our 2025E EPS does
move from $9.57 to $9.71. Our price target moves from $167 to $175 to
reflect our updated 2025 earnings expectations and an increase in our target
multiple by 0.5 points to 10x EBITDA to reflect the positive momentum we
are seeing within TFII’s LTL division.