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What are we looking for?

Transportation and logistics are very much in the news these days. Supply-chain bottlenecks mean many companies are either unable to get raw materials for production or products to shelves for customers. At the heart of this pandemic-era disruption are the transportation and logistics companies tasked with actually getting the goods to customers. With that backdrop, are there firms in this industry presenting investment opportunities?

The screen

We used StockCalc’s screener to select the top 10 transportation and logistics companies by market capitalization listed on the TSX and TSX Venture Exchange. This group includes rail, marine and road transportation, as well as specialty logistics companies. We then used StockCalc’s valuation tools to calculate fundamental (or intrinsic) valuation for each stock to see whether it is undervalued or overvalued compared with its price.

Overview of the techniques used:

  • Discounted cash flow (DCF value) is a valuation technique in which cash-flow projections are discounted back to the present to calculate value per share;
  • A price comparables (price comps) technique values the company on the basis of ratios from selected comparable companies;
  • An adjusted book value (ABV) is calculated by multiplying book value per share by its 10-year average price-to-book ratio;
  • If we have analyst coverage, we look at the consensus target price.

More about StockCalc

StockCalc is a fundamental valuation platform with tools to calculate and report on value per share for thousands of public companies listed on major North American stock exchanges. StockCalc also contains numerous tools to understand what the stocks you are investing in are worth. Globe Unlimited subscribers can subscribe to StockCalc using the promo code ‘Globe30,′ which offers a 30-day free trial and special pricing for the second month.

What we found

Canadian-listed transportation & logistics companies

CompanyTickerIndustryMkt. Cap. ($ Mil.)Recent Close ($)StockCalc Val. ($)Diff. (%)DCF Value ($)Price Comps ($)ABV ($)Analyst Tgt. ($)Div. Yld. (%)1Y Rtn. (%)
Cdn. National RailwayCNR-TRailroads104,217.2151.67151.480.084.63172.26134.72157.451.64.5
Cdn. Pacific RailwayCP-TRailroads55,708.390.2092.883.067.67132.2981.61103.640.85.6
TFI International Inc.TFII-TTrucking11,709.8136.43154.5613.3217.47194.2862.35180.830.9112.8
Cargojet Inc.CJT-TInteg. Freight/Logist.3,339.5194.02198.072.1110.17195.13237.43249.550.5-14.5
Westshore TerminalsWTE-TMarine Shipping1,536.626.7825.66-4.221.9520.0131.6325.803.797.4
Mullen Group Ltd.MTL-TTrucking1,262.414.2615.337.510.6623.4614.4216.503.454.2
Algoma Central Corp.ALC-TMarine Shipping611.117.3117.561.41.9321.5011.9919.673.9108.5
Logistec Corp.LGT-B-TMarine Shipping556.242.5042.37-0.318.9263.2953.88n/a1.029.1
Titanium Trans.TTR-XInteg. Freight/Logist.128.03.864.096.015.516.472.856.082.1163.3
Kelso TechnologiesKLS-TRailroads42.70.760.771.4-0.541.131.26n/an/a2.7

Source: StockCalc

We are used to a wide variety of products being delivered to us next day or even the same day, but that is being squeezed by not being able to have material move efficiently through the supply chain. As recently as last week, the Port of Los Angeles was working with terminal operators, importers, warehouses owners and trucking firms to move more cargo at night and help overcome this problem. The issue is large enough that the White House appointed a “port envoy” in late August.

You would certainly expect all of this to be positive for these firms’ stock prices given the pricing leverage it would afford. Factors offsetting that leverage include the rising price of fuel, container shortages, reduced factory output along the supply chain, and competition from privately held transportation firms looking to increase their capacity amid rising demand.

You can see in the accompanying table the percentage difference between each stock’s recent closing price and its intrinsic value. The StockCalc Valuation column is a weighted calculation derived from our models and analyst target data, if available. Of note in our models is that most of our DCF values are below current price. We attribute that to high capital costs in these industries. Let’s look at three of these companies:

TFI International Inc. is a transportation and logistics organized into four segments: package and courier, less-than-truckload, truckload and logistics. Even with its one-year return of 112.8 per cent we still see upside for TFI. Only our balance sheet model (ABV) is below current price, calculated as TFI’s 10-year average price-to-book ratio of 2.33 multiplied by its book value of $26.76. (TFI’s current price-to-book ratio is more than five.)

Cargojet Inc. operates a domestic air cargo network between major Canadian cities. In April, Cargojet expanded its relationship with Inc. with a deal to operate two Amazon-owned wide-body Boeing 767 aircraft within Canada. Our models show a range of valuations for Cargojet with our weighted average value settling in just above the current price.

Logistec Corp. provides specialized cargo handling and other services to marine, industrial and municipal customers. It has cargo handling facilities in ports across North America and offers marine agency services to foreign ship owners and operators serving the Canadian market. Our models also cover a range of values for Logistec with our weighted average value very close to the current price.

Investing involves risk. StockCalc accepts no liability whatsoever for any loss or damage arising from the use of this analysis.

Brian Donovan, CBV, is the president of StockCalc, a Canadian fintech based in Miramichi, N.B.

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