Refocusing LTL Operations And Integrating New Technology Will Improve Efficiency

Key Takeaways

• Strategic capital expenditure reduction aims to boost free cash flow and improve net margins by optimizing truck utilization.
  
• Refocusing on small and medium accounts in the LTL segment could enhance revenue and margin by replacing lower-margin corporate accounts.
  
• Exposure to tariff-related uncertainty and a freight slowdown, combined with inefficiencies and increased competition, threatens TFI International's profitability and financial performance.

Catalysts

Provides transportation and logistics services in the United States, Mexico, and Canada.

• TFI International plans to strategically reduce capital expenditures from $300 million to approximately $200 million in 2025 due to reduced truck utilization, which may enhance free cash flow and improve net margins.
  
• The company is refocusing on small
• and medium-sized accounts within its LTL segment, aiming to replace lower-margin corporate accounts. Expected revenue increases and margin improvements are anticipated as the mix shifts to more profitable customers.
  
• Leadership changes in the U.S. LTL segment are aimed at improving service quality and operational efficiency, which could lead to better customer retention and revenue growth. The ultimate goal is to achieve a sub-90 operating ratio.
  
• TFI International is implementing new technology solutions and operational improvements, such as Optum for linehaul planning and potential P&D enhancements, which may optimize costs and improve net margins.
  
• Continued share buybacks, with $56 million worth of repurchases in the quarter, alongside strong free cash flow, are expected to boost EPS significantly and return value to shareholders.

TFI International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming TFI International's revenue will grow by 3.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.5% today to 5.4% in 3 years time.
• Analysts expect earnings to reach $510.9 million (and earnings per share of $6.47) by about May 2028, up from $385.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.9x on those 2028 earnings, up from 17.6x today. This future PE is greater than the current PE for the CA Transportation industry at 18.2x.
• Analysts expect the number of shares outstanding to decline by 0.69% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.64%, as per the Simply Wall St company report.

TFI International Future Earnings Per Share Growth

Risks

• There is significant exposure to tariff-related uncertainty in TFI International's industrial end markets, affecting volumes and posing risks to revenue and earnings.
  
• Freight volume across the industry is experiencing a slowdown, resulting in pressure on operating income and profit margins.
  
• Despite leadership changes aimed at improvement, the U.S. LTL segment's adjusted net income decreased due to inefficiencies, impacting profitability.
  
• Increased competition, especially from larger corporate accounts with lower or negative margins, may affect earnings if the current customer mix is not improved.
  
• Uncertain macroeconomic conditions, especially with regards to tariffs and the impacts on industrial sectors, could affect TFI International’s ability to achieve projected earnings, potentially impacting overall financial performance.

Valuation

• The analysts have a consensus price target of CA$137.231 for TFI International based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$172.37, and the most bearish reporting a price target of just CA$87.94.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $9.4 billion, earnings will come to $510.9 million, and it would be trading on a PE ratio of 19.9x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of CA$111.89, the analyst price target of CA$137.23 is 18.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.