Bull List Report – TFI International – TSE:TFII

TFI International – TFII.TO

TFI International Inc is a transportation and logistics company domiciled in Canada. The company organizes itself into four segments: package and courier, less-than-truckload, truckload, and logistics. The package and courier segment picks up, transports, and delivers items across North America. The less-than-truckload segment transports smaller loads. The truckload segment transports goods by flatbed trucks, containers, or a more specialized service. The company provides general logistics services through the logistics segment. TFI International derives the majority of its revenue domestically, followed by the United States.

Focus area	Score
Valuation	78
Profitability	29
Risk	30
Returns	64
Dividend	97
Outlook	35
Debt	32
Growth	45
Overall	49

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Pros

Company has a 10 year compound annual growth rate of 16%+ in terms of operating cash flow
The acquisition of UPS freight paid off much earlier than expected
TFI is the best-positioned logistics company in North America
Proven track record of growth via acquisitions in a highly fragmented industry with 100+ acquisitions since 2008
One of the most efficient trucking companies in North America
Low-yielding but well-covered dividend. Despite rough economic circumstances, the company continually raises the dividend
100% of the company’s debt is fixed rate at 4.5% interest, with a 9 year average maturity
A freight recession has made this one cheap at the bottom of the cycle

Cons

A slowdown in economic activity no doubt impacted the company in 2025
A recession will ultimately result in lower demand for its services, we’re seeing it already
Higher interest rates are making acquisitions more costly, causing the company to slow down in this regard
Tempered short-term outlook due to economic uncertainty
Around a third of the company’s business is involved in the retail and auto sector, which will no doubt see slowdowns moving forward
There is little doubt we are in a full-out freight recession at this point in time, which could continue to put pressure on the stock price

TFI International has a substantial footprint in North America, achieving this through a prudent acquisition strategy. The company only makes acquisitions that are immediately accretive to cash flow, fit within one of its four current segments (we’ll speak on that later), has a U.S. or Canada footprint, and has a strong management team.

The bulk of the company’s operations come from the United States, and the diversity of its customers will allow it to provide consistent cash flow in multiple environments. Yes, it has heavy exposure to retail and auto shipping (around a third of the business). Still, the remaining 2/3 of the portfolio comprises 11 other sectors, including building materials, food and beverage, and energy.

The company maintains double-digit returns on invested capital in every one of its segments except U.S. Truckload, and it is one of the best-managed companies in the country.

Many will ask, “What about the recession?” And to discuss that, we have to look at how the company has performed historically. From 2007 to 2012, arguably one of the worst recessions since the great depression, TFI International’s Adjusted EBITDA margins were maintained.

The industry is heavily fragmented, and we witnessed TFI International taking advantage of this during the height of the pandemic, as they bought up assets for pennies on the dollar from struggling companies. We feel that even if we were to enter a recession in Canada and the United States, the company could continue its plan of strategic acquisitions to fuel growth, as it is one of the best-positioned trucking companies in North America.

The company has a solid balance sheet that can withstand any economic circumstances. 100% of its debt is fixed at an interest rate of 4.5%. In addition, its debt has an overall maturity of 9 years. This means a “higher for longer” interest rate situation would not impact TFI as badly as some other companies.

In my opinion, if the market were to react to a decline in earnings or recession fears, it would be nothing more than a fantastic opportunity to accumulate this industry leader at cheaper prices.

Market leaders tend to take advantage of cyclical downtrends, and I believe TFI will continue to do so. The dominant market share and strong margin profile of the company will allow it to maintain profitability throughout some pretty harsh shipping circumstances in North America (look to the shipping KPIs above).

Beta	1.3
Best monthly return	29.6%
Worst monthly return	-31.5%
Max drawdown	51.5%

Although for an acquisition-heavy company like TFI International, a fragmented market seems ripe for the picking, it also comes with some downfalls. The freight industry is highly competitive, and there are opportunities for lower-cost shippers to enter the space and undercut TFI’s prices to steal customers. The company also uses debt and share offerings to fuel some of its acquisitions.

After nearly 5 years of buybacks and share reductions, the company increased its share count by 11% post-pandemic. Thus far, the share dilution has proven to be more than worth it as the company has made some notable acquisitions, but it is far from guaranteed. Amid the economic uncertainty, primarily from a valuation standpoint, the company seems to have returned to buyback mode.

Growth-by-acquisition companies inherently have more risk, as synergies can end up being lower than expected, or acquisition costs can increase due to increased bids from competitors. There are also fears of a recession or stagflation over the next few years.

Although TFI International has navigated similar situations, there is no guarantee it will do so in the future. A stagflation or deflation environment will present additional difficulties beyond what it witnessed in the 2008 Financial Crisis. TFI is also exposed to high fuel costs and inflationary pressures.

Yes, the company does charge fuel surcharges and is somewhat sheltered from fuel prices. However, if costs get too high to ship, there is a chance we could see a slowdown in shipping activity from its clients as they either wait things out or look for cheaper alternatives.

With the demise of Yellow, TFII becomes the last major trucking company with a union. The risk here is higher costs and demands that far exceed the company’s ability to turn a profit. It was one of the factors that played into Yellow ceasing operations. That said, management had this to say when asked about their position on unions “It’s our goal, us, to make sure that we can grow in a unionized environment by paying our employees well, but also by making sure that they are efficient at what they do and productive.” They are pro-union and don’t view unions as an excuse for poor results.

And finally, we are heading into a substantial freight recession in North America. Ultimately, this is driving down demand, which in turn is driving down the prices for freight because of the intense competition in the industry. This is hitting TFI’s profits, and although it should be short-term in nature, it is no doubt still a headwind.

	TTM	Historical average	Forward numbers
P/E	23.5	18.2	21.2
EV/EBITDA	8.7	10.5	–
Free cash flow yield	9.0%	–	–
P/FCF	11.1	17.2	–
PEG ratio	-1.7	–	–

TFI has gone from a Growth at a Reasonable Price (GARP) play to a long-term value play at this point. However, this will be one that could take some time to come to fruition, and there could be extensive volatility along the way.

In addition to this, you might not “see” the discounted valuation from a numbers standpoint. This is because cyclical stocks price to earnings ratios can look elevated at the bottom of an economic cycle.

The company is nearing a 9% free cash flow yield, which on the surface is usually a strong signal of attractive valuations. However, the market is relatively uncertain with the trajectory of TFI’s free cash flow moving forward, and there is way too much economic uncertainty in terms of trade wars and overall economic strength to make any sort of accurate predictions.

It is key to note that although this makes short-term projections difficult, as long-term investors, we can ignore this noise and accumulate one of the leading logistics companies in North America at lower valuations and reap the benefits.

The company is trading at a premium to its historical averages. However, we are at a point in time where the cyclical nature of the company is causing valuations to “look” expensive, when in reality it is getting cheaper, as I mentioned above.

Cyclical companies tend to have the reverse effect when it comes to valuations. When valuations are high, we are often in a bit of an economic slump. The market is pricing in a better future, and because earnings are low in the current economic slump, valuations “look” high. The same can be said during economic peaks. Valuations will look low because the company’s earnings are high, but the market is pricing in a slowdown. It is very important to understand this concept if you’re investing in cyclical companies.

While many smaller logistics companies will struggle to keep their head above water in an environment like this, TFI will remain profitable and utilize its strong balance sheet to weather this storm. We could get into a situation similar to the COVID-19 pandemic, in which TFI was able to buy discounted logistics companies due to the economic hardship and benefit substantially.

Overall, if you were buying TFI in the high $100 range, you should really like it in the mid $100 range. This is the difficulty with cyclical stocks, as they tend to play on investors’ emotions when they realize large drawdowns. However, it is historically been the best time to buy them.

	TFI (TFII.TO)	Old Dominion (ODFL)	XPO Inc (XPO)
Operating Margins	7.2%	25.4%	8.7%
5-year revenue growth	17.3%	7.2%	-13.5%
5-year EPS growth	13.3%	16.5%	-2.0%
5-year annualized return	16.3%	8.1%	35.8%
ROIC	5.7%	24.4%	5.7%

On the surface it looks like Old Dominion is the superior company, having stronger operating margins and returns on invested capital. However, when you look to top line growth, the fact that TFI International has been able to post double the top line sales growth, this is resulting in larger free cash flow and earnings growth.

Old Dominion is a rock-solid company, however it is one that is much larger in size and will have difficulties growing at the pace TFI does. Old Dominion has also significantly scaled back its acquisitions in recent times, which has ultimately resulted in lower sales growth and lower free cash flow per share growth. Over the last 5 years, TFI International has grown FCF per share at nearly double the pace of Old Dominion.

When we look to surface level metrics, Old Dominion is more efficient, but this is more so because the company is more mature, less acquisition based, and is focused more now on improving its current infrastructure. On the other hand, TFII is simply the faster growing logistics company with the longer runway for growth.

Yield	2.0%
Payout ratio (EPS)	44.3%
5-year dividend growth %	18.4%
Money Spent/Received on Buybacks and Share Issuances	$364.5M

While TFI’s yield won’t do much for those seeking higher income, one must not discount the company’s strong history of dividend growth. It is a Canadian Dividend Aristocrat, achieving 14 consecutive years of annual dividend growth.

Over this period, the company has averaged double-digit growth, and its five-year average currently sits just shy of 18%.

The company increased the dividend from $1.08 to $1.40 per share in late 2022, and recently raised the dividend in late 2024 to $1.80 a share, a 13% increase.

With payout ratios in the high-teens range when it comes to free cash flow, there should be plenty of room for this company to continue the outstanding pace of dividend growth despite some rough earnings. It seems like the company is falling into the pattern of raising the dividend in the latter portions of the year. So, we can expect the next increase to come towards the end of 2025.

On the buyback front, as mentioned earlier on in the report the company has shifted back into buyback mode after several share issuances during the pandemic to fuel acquisitions. If the company doesn’t find any more opportunities to deploy capital, I would fully expect these buybacks to continue.

The only thing I could see changing the company’s shareholder return strategy is a drawn out economic downturn or escalating trade war. At that point, TFI could turn to capital preservation to shore up its balance sheet, or potentially even deploy some capital to strategic acquisitions from many trucking companies that will no doubt get into financial trouble.

Last quarter	EPS	Revenue
Expectations	$1.67	$2.8B
Reported	$1.67	$2.7B
Surprise	–	-3.4%

Annual estimates	EPS	Revenue
2025	$5.88	$11B
2026	$7.58	$11.36B
2027	$9.75	$11.95B

TFI International delivered another quarter that was about as good as it could get considering the macro environment. Revenue before fuel surcharges came in at $1.7 billion, down from $1.9 billion a year ago, while operating income came in at $153M and margins of around 8.9%. While many trucking companies are struggling to survive, particularly smaller ones, TFI’s scale and balance sheet allow it to remain profitable during periods of economic weakness.

Earnings came in at $1.20, 24% lower than last year. There isn’t much that can be done in regards to earnings during a macro environment like this. However, free cash flow, the more important metric at this point in time, topped $200 million in the quarter and sits over $570 million year-to-date. This is actually ahead of 2024 levels.

This allowed the company to buy back $67 million in shares this quarter and another $17 million repurchased after quarter-end. In addition to this, it bumped the dividend by 4%. Large cash flow generation from TFI International should allow it to continue to buy back shares at high rates. Which, if we’re at the bottom of the cycle, should be a reward for shareholders. Many might wonder why TFI is not making acquisitions at this point in time. I can give you the answer. It sees more value in buying its own shares.

Volumes are weak, but TFI’s discipline is certainly showing. Less-than-truckload (LTL) revenue fell 11%, Truckload revenue fell 5%, and Logistics was hit hardest, with revenue down 14%. The key thing to note here is margins remained stabled across virtually every segment of the business.

Q4 is expected to be tough. Management guided to Q4 earnings of $0.80 to $0.90, and this is assuming a 200-300 basis point reduction in margins. Logistics and specialized truckload are also expected to be down due to lower truck builds and Department of Defense volumes.

TFI management is not shy to just lay the situation out as it is. They don’t beat around the bush. So, when the forward tone during the conference call was optimistic, it gives me a good indication that 2026 is probably going to be a solid recovery year. Bedard, the company’s CEO, pointed to regulatory tightening (driver classification in Canada, CDL and English proficiency rules in the U.S.) and falling equipment sales as signs that supply is finally correcting. Add in stimulus from falling rates and potential trade clarity (and I mean potential), and management sees room for better pricing, volume, and operating leverage next year.

The company remains open to acquisitions, but as I mentioned, TFI is more interested in buying themselves via buybacks. They mention there are not too many companies willing to sell right now. Still, management left the door open for a large deal in 2026 if the right opportunity and valuation align.

Here is the big picture for long-term investors. TFI is managing through the freight downturn with strong cost control, solid cash flow, and a focused playbook. This is precisely what you want from a company exposed heavily to the cyclicality of the economy.

The company is not betting on a rapid recovery, but is clearly laying the tracks for one. If freight demand picks up in 2026, particularly in U.S. LTL, TFI could show meaningful upside. Until then, it’s a story of patience.

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