On today’s TSX Breakouts report, there are 18 stocks on the positive breakouts list (stocks with positive price momentum), the majority of which are gold and silver stocks. Meanwhile, 21 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is an industrial stock that appears on the positive breakouts list. Recently, many analysts have revised their expectations higher taking the number of buy recommendations up to 15. The stock has a current yield of 2.2 per cent with a quarterly dividend that has steadily grown over the years.
The security highlighted today is TFI International Inc. (TFII-T).
A brief outline is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
The company
Montreal-based TFI International is a trucking company with operations in Canada, the United States, and Mexico. The company is a market leader with the largest trucking fleet in Canada. In terms of geographical breakdown, last quarter 53.6 per cent of revenue was from Canada, 46 per cent was from the U.S., and 0.4 per cent was from Mexico.
The company has four operating segments: truckload, logistics, less-than-truckload (LTL), and package and courier. During the first quarter, the truckload segment represented 48 per cent of revenue, the logistics segment represented 22 per cent of revenue, the less-than-truckload accounted for 17 per cent of revenue, and the package and courier segment accounted for 13 per cent of revenue.
TFI has a diversified customer base with no individual client representing more than 5 per cent of its consolidated revenue. The company serves clients across a wide range of industries including retail, automotive, energy, forest products, food and beverage, and building materials. Retail was the largest industry exposure, accounting for 25 per cent of revenue in 2019.
Acquisition growth remains a key objective by management. Since 2008, the company has completed over 80 acquisitions. Most recently, on June 18, the company completed the acquisition of Vaughan, Ont.-based Gusgo Transport, a container transport and storage company.
At the UBS Global Industrials and Transportation conference held in early June, CFO David Saperstein discussed future acquisition opportunities, “This year, obviously, we’ve had to put things on pause a little bit, but we’re resuming. We’re resuming some of the tuck-ins, some of the really kind of clear, obvious deals for us that just make a whole lot of sense. In terms of areas that we like, look, we really like the specialized truckload space, particularly the bulk side, liquid bulk, dry bulk, food, chemicals, agriculture. These are good, very good end markets, very good barriers to entry, very good elements that we discussed earlier. We also like LTL. We like the LTL, the consolidated nature of the LTL business in the U.S. In Canada, there are a lot of underperforming LTL companies that need to be consolidated out, and so they’re on both sides of the border. That’s an area that we like. And then, of course, parcel. We’ll continue to do parcel. Don’t expect that there’ll be much capital to be deployed on the parcel side because there’s a lot of distressed work to be done, but there’ll be very meaningful, very high returns on the capital.”
After the market closed on April 21, the company reported better-than-expected first-quarter financial results.
The company reported revenue of $1.24-billion. Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) came in at $200.5-million, above the consensus estimate of $185-million. Reported adjusted earnings per share was 83 cents, surpassing the Street’s expectations of 70 cents. The following day, the share price rallied nearly 10 per cent.
On the earnings call, chairman, president and chief executive officer Alain Bédard outlined cost reductions initiated by management, “First, we reduced wage for executives anywhere from 5 per cent to as much as 15 per cent for all C-level officers and all executives VP across our organization. Second, for more than 1,000 full-time employees, we’ve reduced their workweek to four days, while helping them through this time by maintaining their pay at 85 per cent of base salary, which amounts to an increase in their per-day wage. Third, many other employees were subject to reduction in force, which we hope will prove temporary. For these individuals, we have not continued to provide benefits, but we also instituted a base salary recovery program to support them during this period of temporary unemployment. Fourth, we suspended all CapEx to which we had not committed, and we plan to revisit these potential outlays as condition permit. Again, these are just a few examples of the many strategies we have implemented.”
In February, the company began trading on the New York Stock Exchange in addition to the Toronto Stock Exchange under the same ticker, TFII.
The company is anticipated to release its second-quarter financial results around July 24. The consensus EBITDA and earnings per share estimates are $162.6-million and 52 cents, respectively.
Dividend policy
The company pays its shareholders a quarterly dividend of 26 cents per share, or $1.04 per share yearly. This translates to a current annualized yield of 2.2 per cent.
Management has announced a dividend increase in each calendar year since 2016.
Analysts’ recommendations
This mid-cap industrial stock with a market capitalization of $4-billion is well covered by the Street. There are 16 analysts that actively cover this company (have issued research reports on the company after TFI reported its first-quarter earnings results), of which 15 analysts have buy recommendations and one analyst (CIBC World Markets’ analyst Kevin Chiang) has a ‘neutral’ recommendation.
Firms providing recent research coverage on the company are: Accountability Research, BMO Nesbitt Burns, CIBC World Markets, Cormark Securities, Cowan, Credit Suisse, Desjardins Securities, J.P. Morgan, Laurentian Bank Securities, Morgan Stanley, National Bank Financial, RBC Dominion Securities, Scotia Capital, Stephens, Stifel and Wolfe Research.
Revised recommendations
This month, numerous analysts have revised their expectations, including:
- Scotia’s Konark Gupta lifted his target price to $54 from $43, and upgraded his recommendation to a “sector outperform” from a “sector perform.”
- BMO’s Fadi Chamoun lifted his target price to $54 from $46.
- RBC’s Walter Spracklin increased his target by $16 to $53.
- National Bank’s Cameron Doerksen raised his target to $54 from $45.
- CIBC’s Kevin Chiang increased his target to $47 from $38, and upgraded his recommendation to a “neutral” from “underperformer.”
- Accountability Research’s Mark Suarez lifted his target by $6 to $50.
Financial forecasts
The consensus EBITDA estimate is $730-million in 2020 with EBITDA forecast to rise to $827-million in 2021. The Street is forecasting earnings per share to come in at $2.78 in 2020 and $3.68 the following year.
The consensus earnings forecasts have declined with economic activity coming to a halt in order to reduce the spread of COVID-19. To illustrate, four months ago, the Street was anticipating EBITDA of $870-million in 2020 and $905-million in 2021. The consensus earnings per share estimates were $4.15 for 2020 and $4.35 for 2021.
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 6.6 times the 2021 consensus estimate, in-line with the three-year historical average but below its peak multiple of over 8 times during this time period. On a price-to-earnings basis, the stock is trading at 12.6 times the 2021 consensus estimate, slightly above the three-year historical average of 11.3 times.
The average one-year target price is $51.15, implying the stock price may appreciate 10 per cent over the next 12 months, providing a potential one-year total return of 12 per cent (including the 2 per cent dividend yield).
Insider transaction activity
Year-to-date, three insiders have reported trading shares in the public market. The majority of trades were completed by the chairman, president and chief executive officer Alain Bédard. His most recent transactions are listed below.
On June 22, Mr. Bédard exercised his options, receiving 25,000 shares at a cost per share of $9.46, and sold 25,000 shares at a price per share of $45.337, leaving 4,149,818 shares in this particular account. Net proceeds, not including trading fees, totaled nearly $900,000.
On June 16, , Mr. Bédard exercised his options, receiving 25,000 shares at a cost per share of $20.18, and sold 25,000 shares at a price per share of $45.33. Net proceeds, excluding commission fees, exceeded $628,000.
Between May 28 and June 12, Mr. Bédard exercised his options, receiving a total of 200,000 shares at an average cost per share of roughly $12.14, and sold 200,000 shares at an average price per share of approximately $43.52. Net proceeds, excluding commission charges, totaled over $6.2-million.
Chart watch
Year-to-date, the share price is up 6 per cent, nearing its record closing high of $48.70 reached in Sept. 2018.
The stock just experienced a bullish technical pattern – a “Golden Cross.” This occurs when a shorter-term moving average crosses above a longer-term moving average. Many technical analysts suggesting waiting until the short-term moving average crosses above the longer-term moving average by a certain percentage, such as 3 per cent, in order to confirm the bullish pattern. In this case, the 50-day moving average (at $40.71) recently crossed above the 200-day moving average (at $40.60).
Looking at key resistance and support levels, there is overhead resistance between $49 and $50, near its record closing high of $48.70. After that, there is resistance around $60. On a pullback, there is initial technical support around $45, and failing that, around $40. There is strong technical support at $35.
The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.
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Jennifer Dowty