While sentiment around the trucking industry “remains tough” amid signs of some market “softness,” National Bank Financial analyst Cameron Doerksen thinks TFI International Inc. is likely to outperform the industry, expecting a “solid” third-quarter.
“While trucking rates continue to soften in the U.S. and the broader economic outlook points to further weakening, we note that LTL [less than truckload] now represents 47 per cent of TFII’s revenue and the U.S. LTL Producer Price Index (which we view as an indicator of LTL pricing) was up 16.0 per cent year-over-year in September. TFII will also benefit from company-specific margin expansion opportunities in its LTL operation in the coming quarters that are independent of end-market demand.”
Ahead of the release of the company’s third-quarter results on Oct. 27, Mr. Doerksen is projecting earnings per share of $1.78, up from $1.46 during the same period a year ago but below the consensus on the Street of $1.93 (though he notes the estimate range is “quite wide”).
“As for full year 2022 guidance (currently at $8.00 in EPS), we do not expect any major changes as the recent share buyback activity will be partially offset by the sale of the CFI TL division, which closed in late August,” he said.
Mr. Doerksen emphasized the Montreal-based company’s balance sheet is “well positioned” for an ecomoic showdown.
“Leverage remains low, at an estimated 1.0 times following the close of the CFI business sale at the end of August which should facilitate M&A,” he said. “Current market conditions are also favourable from a target valuation perspective. In the absence of imminent M&A, we expect TFII to be active with its NCIB. The company repurchased 2.1 million shares at an average price of $125.97 throughout Q3/22. We anticipate that TFII will renew the NCIB once the current one expires on November 1st.”
After “modest” downward revisions to his forecast and valuations, Mr. Doerksen trimmed his target for TFI shares to $150 from $152, maintaining an “outperform” recommendation. The average is $142.97.
“Recession fears continue to weigh on all trucking stocks and investor sentiment is likely to remain challenging for TFII shares in the near term,” he said. “However, we remain positive on TFII’s prospects so longer-term oriented investors should look to add to positions on share price weakness.”