EARNINGS UPDATE
Q3/24; GREAT DEMONSTRATION OF VALUE IN BUSINESS MODEL
THE TD COWEN INSIGHT
Maintaining $21.00 target and BUY. Unch target reflects shift fwd in valuation period to 4Q ending Q3/26 (from Q2/26), higher forecast adj EPS, and lower valuation-period net debt due to increased FCF. No material change to our bullish investment thesis. Upward bias expected to share price due to earnings beat, greater appreciation for earnings resiliency, and low valuation.
Impact: POSITIVE
Our lower forecast EBITDA reflects downward bias to price growth and other minor modelling updates, partially offset by the carry forward of stronger-than-forecast Q3/24 EBITDA. Higher adj EPS reflects refined downward bias to ROU D&A forecast. Q3/24 EBITDA of $95.3 million vs. TD/cons at $90.4/$89.5 million. Q3 diluted EPS of $0.41 vs. TD/ cons at $0.32/$0.36.
Q3/24 EBITDA growth of 8% despite a 1% decline in organic revenue. This is a strong result, in our view, against a backdrop of limited freight demand growth and capital spending, and competitive pressure. LTL revenue declined 3.3% y/y vs. 3.7% decline for TFI's Canadian LTL division, and more significant revenue declines for those US LTL's that have reported. The segment generated a 19% EBITDA margin (up 130 bps y/y) compared to much higher multiple LTL comps (ex-outlier) which are forecast to average 15.0%. We estimate relatively strong LTL margins in 2025 (TD: 17.5% vs. comp-group consensus forecast of 14.7%).
L&W reported stronger-than-forecast EBITDA margin. The ContainerWorld acquisition and cost controls should continue to drive margin expansion through H1/25. S&I generated slightly higher-than-forecast EBITDA and a respectable 21.8% margin.
Management's near-term outlook is substantially unchanged relative to Q2/24 with 2024 EBITDA guidance biased higher (TD: 2% above $325 million guide). Focus remains on costs/ margin/M&A with limited economic growth and more patience required before industry capacity rationalizes.
Mullen is trading at a large discount to its weighted-average comp group (10.4x P/E and 6.1x EV/EBITDA vs. 5-year average discount of 9.1x and 5.5x, respectively) and below historical multiples. We continue to believe MTL's low valuation and exposure to Canada (less volatile market than U.S.) in an environment of tonnage weakness and pricing pressure should lead to relative outperformance.