TFI International (TSX:TFII) saw a 2.74% increase in its stock price today, riding on news that the Toronto Stock Exchange had approved the renewal of the company’s normal course issuer bid. TFI International may now repurchase a maximum of 7,000,000 shares for cancellation.
The share buybacks represent around 9% of the companies total shares outstanding, and the company is allowed to begin purchasing shares on October 2nd. The deadline for repurchase ends October 1st, 2020.
The deal is very similar to the one the company had in place prior to this new deal, which allowed them to purchase up to 8.3 million common shares. Over the course of October 2nd 2018 up until now, TFI International repurchased a total of 6,990,000 common shares at an average price of $39.58 a share. The company decided to cancel all of the shares it had purchased.
Why is the company repurchasing shares?
It is well known that the transportation and logistics company is trading at a deep discount relative to its true value. Due to the stocks struggles, investors are left with a stock that provides an excellent dividend yield (2.43% at the time of writing) with an extremely low payout ratio of only 25%. To add to this, the company is only paying out 33% of its current free cash flows towards its dividend.
TFI is trading at under 10 times forward earnings, and with a 5 year PEG ratio of only 0.53, there is a lot more room to grow for this company than is reflected in its current share price.
Trade wars are wearing this transportation stock down, and as a result management has realized its share price is cheap, and has decided to renew its share buyback program. Over the short term, we can expect this to boost TFI’s price as investor confidence rises in the undervalued stock.
The company will strategically repurchase shares throughout the term of this agreement, and states that it is an appropriate use of the companies financial resources, and should do well do enhance shareholder value.
**Daniel Kent is long TFII.TO