Multiple Compression Leading to Opportunities TD Investment Conclusion
We are maintaining our BUY recommendation on Cargojet, and HOLD recommendations on TFI International and Andlauer Healthcare Group (AHG). Due to multiple adjustments, we are reducing our target prices on Cargojet to $220.00 from $235.00 and TFI to $145.00 from $160.00, while our AHG target price remains unchanged at $55.00.
The minor changes to our forecasts (Exhibit 1) reflect updated currency, fuel, recent industry data, and other minor modelling updates. The net impact of our updated assumptions have mixed, but immaterial impacts on our TFI International and Cargojet forecasts. We are reducing our target multiples on Cargojet and TFI to reflect our view that their valuation multiples could be under pressure due to cyclical concerns and that achieving our previous target multiples will be challenging over the next 12 months.
We believe that recent weakness in trucking and dedicated air-cargo valuations is the natural reaction by a market that is increasingly concerned about peak cargo transportation pricing and the eventual alleviation of ground capacity bottlenecks, while taking the view that the consumer preference for goods versus services during the pandemic will begin to mean revert.
Cargojet's share price has rebounded in recent days, but remains well below its 2021 high and our target price. We attribute this to profit taking, investor concerns regarding capex plans in an industry that is attracting significant new capacity, labour cost inflation, and the view that pricing for air cargo transportation services could be poised to peak. We believe that these are valid investor concerns, but that the share price overreacted, and that the company's earnings potential through the middle of the decade and management's commitment to profitable growth will ultimately take the share price higher over the next 12 months.
We believe that Andlauer Healthcare Group's focus on the transportation of temperature-controlled healthcare products and the unique pricing and volume characteristics of this sub-segment of the industry will shelter its valuation from cyclical concerns. As a result, we are maintaining our target valuation multiples, which are in line with its current forward valuation, and our target price on the stock. Management has been delivering strong and predictable growth, along with acquisitions, which we believe will provide investors with long-term upside.
We currently view TFI International as a company that has the business model, service diversity, and demonstrated commitment to shareholder returns to take the shares modestly higher over the next 12 months. However, with the approaching disclosure of Q4/21 financial results, we believe that it is prudent to wait until we can review results and make any necessary revisions to our financial forecasts before considering any changes to our recommendation.