Cost-Saving Initiatives to Support Business During the Current Crisis: TFI International Inc. (TSX: TFII) is a leading transportation and logistics company in North America and operates across the United States, Canada and Mexico. The company operates through four segments, namely Package and Courier, Less-Than-Truckload, Truckload and Logistics.

The company paid a quarterly dividend of CAD 0.26 per share, higher than CAD 0.24 in the previous corresponding period. In response to the COVID-19 outbreak, the company announced cost-saving measures that include wage reduction of 5% to 15% for executives, ~15% reduction in directors’ fees, temporary reduction in work force and a work-week reduction for more than a thousand full-time employees. Further, the company suspended all capital expenditures.

Q1FY20 Financial Highlights: For the quarter ended March 31, 2020, TFII reported an impressive set of numbers aided by margin improvement on account of several cost savings initiatives. TFI International posted a total revenue of CAD 1,240.5 million, up 1%. During the quarter, Logistics and Truckload revenues showed growth. However, Package and Courier and Less-Than-Truckload income declined. Operating income stood at CAD 118.5 million, grew 13% aided by growth from acquisitions, adoption of the asset-light model and cost efficiencies. Net income stood at CAD 75.8 million, as compared to CAD 65.1 million in the previous corresponding period. Net cash from operating activities grew 19% on y-o-y basis to CAD 191.7 million supported by stronger operating performance and the deferral of certain tax payments. The Company returned CAD 65.5 million to its shareholders in the form of dividends and share buybacks during the quarter.

Q1 FY20 Income Statement Highlights (Source: Company Reports) 

Valuation Methodology (Illustrative): P/E-based approach

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock corrected ~17% in the last nine-months and quoted at CAD 32.41 on 21 April 2020 market close with a market capitalization of ~CAD 1.33 billion. The stock offers a lucrative dividend yield of ~3.21%, which is impressive considering the current interest scenario. The stock is trading at a lower valuation as compared to its peers and we expect the multiple of to expand as the economy revives. Despite challenges, the company managed to report strong set of numbers. We believe the company’s cost-savings measures and gradual improvement in demand is likely to drive its stock higher. The stock is currently trading at a forward P/E multiple of ~9.4x which is below the Industry (Freight and logistic) average. We have valued the stock using the P/E based relative valuation methodology with a target multiple of 11.0x. We arrived at a target price offering double-digit upside potential (in % terms) from the current level. Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 32.41 as on April 21, 2020.

TFII Daily Price Chart (Source: Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.