There are a few Canadian stocks over the years that have caused investors to sit back and think "wow, pretty thankful I was patient with that one!"
One of those stocks for myself, along with many Stocktrades Premium members after our highlight of the company in the low $40 range as a value play, is TFI International (TSE:TFII).
A stock that traded relatively flat for me for the better part of a year, I'm now sitting on returns in excess of 200%. If you have a "what have you done for me lately" approach to investing, you'll inevitably struggle. This is because some plays like TFII can take multiple years to come to fruition. Many investors become frustrated and sell.
However, one of the key things investors are asking right now, is if TFI International is still a buy today. That's exactly what we're going to look at in this article.
What does TFI International (TSE:TFII) do?
TransForce International, or TFI for short, is a Canadian trucking and logistics company. The company operates in four key segments: package and courier, less-than-truckload, truckload, and logistics.
Its packing segment picks up, transports, and delivers many items across North America, its truckload segment delivers items typically on flatbed trucks or containers, while its less-than-truckload moves smaller loads.
The majority of TFI's revenue is generated here domestically, however it does have strong exposure south of the border.
A key driver for the company's growth as of late has been the acquisition of UPS Freight in early 2021. This acquisition bolstered the company's less-than-truckload and truckload segments, as these divisions generated nearly $3B USD in revenue last year.
The acquisition also gave TFI International one of the largest networks in terms of less-than-truckload in North America. The market took the acquisition well as you can see by the chart below, and TFI has been on a tear ever since.
But, now that the market has fully absorbed the acquisition, does TFI still provide value to investors today? Lets take a look at the company's valuation.
To buy or not to buy? TFI's valuation today
It's easy to look at a stock that has run up as much as TFI has and immediately label it as expensive. However, when we have acquisitions coming into the mold, it changes things.
The market may choose to award the company a higher or lower earnings multiple and it's important to understand that the acquisition of UPS Freight has significantly boosted the forward outlook for TFI.
In fact, if we look to estimates on how the company would have performed in the third quarter of this year prior to the UPS acquisition, most analysts has earnings per share in the $1.21 range. Now? They're expecting earning per share of just shy of $1.70. This is a significant boost to the company's bottom line, and is likely why TFI is maintaining an upward trajectory.
However, on a forward looking basis, valuations definitely seem to be getting up there.
If we look to TFI on a forward price to earnings basis, this is the most expensive the company has been over the last year, by quite a large margin. Historically, TFI has never traded anywhere near this range.
In fact, historical averages on a 3, 5, and 10 year basis have TFI trading in the range of 14-15 times earnings.
So at 23X, it's looking a bit optimistic. However, this is also a company that had been significantly undervalued over the last half decade.
I believe the Warren Buffet adage rings true in this situation...
"It's better to buy a wonderful company at a fair price than a fair company at a wonderful price"
Although TFI is a tad on the expensive side from a historical standpoint, this might simply be the market reassessing what it is willing to pay for a company like TFI International.
Analysts absolutely love TFI International right now
Out of 19 analysts covering the company, 9 rate it a buy, 9 rate it an outperform and only 1 rates the company a hold.
In terms of price targets, most have 12-18 month targets in the high $149 range. But if we look to the company's history in terms of analyst targets, we can spot a significant trend. And that trend is the fact they're upgrading at a pretty rapid pace.
In fact, in early April of 2021, the company had target prices in the $100 range. Those now sit nearly 50% higher just a few short months later.
Overall, TFI International is likely to continue impressing investors
TFI is one of the largest holdings in my portfolio, and likely will be for the foreseeable future.
I believe the company is in an outstanding position to continue providing growth for investors through new acquisitions, as well as a booming e-commerce sector that will no doubt result in boosts to its less-than-truckload parcel deliveries.
The company has double digit return on equity, assets and invested capital ratios and has maintained these for half a decade or longer, highlighting the company's ability to take shareholder capital and turn a profit.
Exceptional management is one of the main things I look for in a company, and TFI's ability to navigate the pandemic and come out of it ahead in a significant way due to prudent acquisitions and business operations is one of the primary reasons I will continue to be a shareholder for a long time.
Is a lot of the value gap closed? I'd say yes. But, don't let that deter you from buying an outstanding company.