Leveraging Daseke Acquisition And Tech Upgrades Will Optimize Efficiency

Key Takeaways

• Strategic cost reductions and asset optimization in U.S. operations aim to boost margins and cash flow positively.
  
• U.S. re-domiciliation enhances tax advantages and M&A opportunities, benefiting operational alignment and future earnings.
  
• TFI International faces challenges with declining freight volumes, decreasing margins, foreign exchange risks, cost management issues, and retention of small to midsize U.S. clients.

Catalysts

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

• TFI International is focusing on reducing costs significantly in its U.S. operations, especially within TForce Freight, which could improve net margins and earnings.
  
• The company plans to leverage its recent acquisition, Daseke, and optimize its asset base by shedding excess equipment, potentially improving net margins and free cash flow.
  
• TFI International is implementing technology upgrades, such as P&D software and billing systems, to optimize efficiency and potentially increase net margins.
  
• The firm aims to grow organically by increasing its focus on improving density in its trucking operations, which can drive revenue growth and improve operating ratios over time.
  
• TFI International's strategic initiative to re-domicile to the U.S. is expected to align with its shareholder base and commercial operations, potentially leading to favorable tax implications and increased M&A opportunities, which could positively impact future earnings.

TFI International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming TFI International's revenue will grow by 3.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.0% today to 7.0% in 3 years time.
• Analysts expect earnings to reach $651.9 million (and earnings per share of $8.18) by about April 2028, up from $422.5 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 16.3x on those 2028 earnings, up from 15.7x today. This future PE is lower than the current PE for the CA Transportation industry at 17.4x.
• Analysts expect the number of shares outstanding to decline by 0.17% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.68%, as per the Simply Wall St company report.

TFI International Future Earnings Per Share Growth

Risks

• TFI International is facing a prolonged slump in freight volumes, with ongoing market challenges, which could continue to put pressure on revenue growth.
  
• The company's operating margins have decreased, marked by a decline in operating income from $198 million to $160 million, suggesting pressure on net earnings.
  
• Foreign exchange fluctuations pose a risk to TFI International, with potential variability in earnings, as seen with a $0.03 EPS impact in the last quarter.
  
• Persistent issues with cost management at TForce Freight, including high maintenance and fleet costs, are diminishing profitability, potentially affecting net margins.
  
• The U.S. operation's struggle with retaining small
• and medium-sized businesses and reducing high churn rates could hinder potential revenue enhancement strategies.

Valuation

• The analysts have a consensus price target of CA$141.966 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$177.79, and the most bearish reporting a price target of just CA$102.08.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $9.3 billion, earnings will come to $651.9 million, and it would be trading on a PE ratio of 16.3x, assuming you use a discount rate of 7.7%.
• Given the current share price of CA$108.64, the analyst price target of CA$141.97 is 23.5% 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.