TFI International Inc TFII

TD Report

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TFI International Inc.

(TFII-T) C$127.90

Q2/22; Exceptional Results Raise Expected Earnings Potential Event

After market close on July 28, TFI reported Q2/22 Adjusted diluted EPS of $2.61 ($2.41 excluding gain on equipment disposition), compared with TD/consensus at $2.02/$1.80. Adjusted EBITDA of $442 million ($418 million excluding gain on equipment disposition) compared with TD/consensus at $364 million/$350 million.

Impact: POSITIVE

We are maintaining our BUY recommendation and increasing our target price to C$160.00 from C$125.00. The increase is due to higher valuation-period forecast Adjusted EBITDA and Adjusted EPS, and a shift forward of our valuation period by one quarter. Our higher forecasts are due to carrying forward a portion of the stronger-than-expected margins in P&C and Logistics and updated company guidance. Although we continue to believe that consumer and economic headwinds could create more challenging operating conditions for TFI through 2023, we believe that the company-wide strategy of 'freight that fits', its UPS Freight acquisition, and other internal initiatives will provide significant opportunities for at least partially offsetting margin enhancement.

TFI reported very strong Q2/22 results, with Adjusted EBITDA above our forecast in all four segments, while EBITDA margin was above our forecast in three out of four segments. Although acknowledging that economic conditions could become more challenging, management is not seeing any signs of a freight recession and is continuing to see demand exceed its capacity. We believe that TFI's limited exposure to spot-market rates, focus on capital efficiency, margin expansion, profitability, strong balance sheet, and acquisition-minded management team will reward investors over 12 months and beyond.

We believe that TFI's earnings power will be sufficient to generate attractive shareholder returns over the next 12 months. TFI's forward EBITDA multiple is down 34% since the end of 2021 versus 26% for its comparable group. Although we expect that consumer spending and economic uncertainty could impede multiple expansion in the short term, we believe that multiple expansion will resume over the next 12 months, given TFI's business-model attributes, long-term growth potential, and proven focus on adding shareholder value.

TD Investment Conclusion

We believe that TFI's valuation relative to comps, above-average historical and forecast growth, prudent financial leverage, and track-record of shareholder value creation support a higher share price and our BUY recommendation.