On today’s TSX Breakouts report, there are 45 stocks on the positive breakouts list (stocks with positive price momentum), and 25 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a mid-cap stock that is nearing oversold territory and appears on the negative breakouts list. This cyclical stock has come under pressure in recent weeks due to rising concerns of an economic slowdown. However, operationally, management is delivering strong results, reporting better-than-expected earnings last quarter, in spite of harsh winter weather conditions. The stock is trading at an attractive multiple, below its historical average. Management remains committed to returning capital to its shareholders. The stock has a current yield of 2.4 per cent with a quarterly dividend that has steadily grown over the years. Furthermore, management has been active in its share buyback program.
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.
Montreal-based TFI International is a trucking company with operations in Canada, the U.S., and Mexico. The company is a market leader with the largest trucking fleet in Canada.
The company has four operating segments: package and courier, less-than-truckload, truckload, and logistics and last mile. The truckload segment represented 48 per cent of revenue in the first quarter, the less-than-truckload and logistics and last mile segments each represented 19 per cent of revenue. Lastly, the package and courier segment accounted for 14 per cent of revenue.
TFI has a diversified customer base with no single 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.
Acquisition growth remains a key objective by management. Since 2008, the company has completed over 70 acquisitions. Year-to-date, the company has completed five acquisitions: Toronto Tank Lines, Schilli Corp., Les Services JAG, Aulick Leasing Corp., and assets of BeavEx Inc. On the first-quarter earnings call, the chairman, president and chief executive officer Alain Bédard indicated that for the balance of the year, he does not expect to complete any large, transformative deals but rather small, “tuck-in” acquisitions.
After the market closed on April 23, the company reported better-than-expected first-quarter financial results. The company reported revenue of $1.23-billion. Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) came in at $188.9-million, well above the consensus estimate of $151-million. Reported adjusted earnings per share was 77 cents, surpassing the Street’s expectations of 67 cents. Management indicated that it was able to increase truckload pricing on contract renewals by between 3 per cent and 6 per cent. The following day, the share price rallied 5 per cent.
In terms of guidance, management reiterated their earnings per share guidance of between $3.80 and $3.90 but expressed room to increase this target.
On the earnings call, Mr. Bédard stated, “We’ve always been very conservative … so we’re still sticking to our $3.80 to $3.90 in terms of EPS (earnings per share) for 2019 ... Let’s see what happens in Q2 (the second quarter), and then probably, we may update that and for sure, the possibility of us going to $4 is reasonable.” Management targets free cash flow of between $400-million and $450-million in 2019. In addition, Mr. Bédard also remarked on the call that while economic activity was great in 2018, in 2019, “Maybe it’s going to be good but maybe not as good.”
Returning capital to shareholders
Management is committed to returning capital to its shareholders through its dividend payments and share buybacks.
The company pays its shareholders a quarterly dividend of 24 cents per share, or 96 cents per share yearly. This translates to a current annualized yield of 2.4 per cent. Last Oct., management announced a 14 per cent dividend hike, increasing its dividend to its present level of 24 cents per share from 21 cents.
During the first quarter, management was active in its share buyback program, spending $96.6-million on share repurchases and buying back 2,498,400 shares at prices ranging from $33.89 to $41.33.
This mid-cap industrial stock with a market capitalization of just under $3.4-billion is well covered by the Street. There are 14 analysts that cover this company, of which 11 analysts have buy recommendations and three analysts have neutral recommendations.
Firms providing research coverage on the company are as follows in alphabetical order: Accountability Research, BMO Nesbitt Burns, CIBC WorldMarkets, Cowan, Desjardins Securities, Echelon Wealth Partners, Industrial Alliance Securities, Laurentian Bank Securities, National Bank Financial, RBC Dominion Securities, Scotiabank, Stephens, Stifel and TD Securities.
This month, David Ross, an nalyst at Stifel, trimmed his target price to $54 from $55.
After the company reported its quarterly earnings results in April, 10 analysts revised their expectations– all higher. Several revisions are noted below.
Benoit Poirier from Desjardins Securities raised his target price by $5 to $60. Damir Gunja from TD Securities bumped his target price to $54 from $52. Turan Quettawala, an analyst at Scotiabank, lifted his target price to $49 from $47.50. Fadi Chamoun, the analyst at BMO Nesbitt Burns, lifted his target price to $45 from $44. Walter Spracklin from RBC Dominion Securities increased his target price by $5 to $53. Kevin Chiang, an analyst at CIBC World Markets, increased his target price to $47 from $44. Cameron Doerksen from National Bank Financial raised his target price to $48 from $47.
The consensus EBITDA estimate is $833-million in 2019 and forecast to rise to $854-million in 2020. The Street is forecasting earnings per share to come in at $3.90 in 2019 and $4.22 in the following year. Again, management is guiding to earnings per share of between $3.80 and $3.90 in 2019.
Over the past several months, earnings forecasts have increased. To illustrate, three months ago, the Street was anticipating EBITDA of $736-million in 2019 and $762-million in 2020. The consensus earnings per share estimates were $3.82 for 2019 and $4.09 for 2020.
The stock appears inexpensive, trading near trough levels. According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 6.5 times the 2020 consensus estimate, below the three-year historical average of 7.2 times. On a price-to-earnings basis, the stock is trading at 9.4 times the 2020 consensus estimate, well below the three-year historical average of 12.2 times.
The average one-year target price is $53.29, implying the stock price may appreciate 34 per cent over the next 12 months, providing a potential one-year total return of 36 per cent (including the dividend yield). Individual target prices are as follows in numerical order: $45 (the low on the Street is from Kevin Chiang, an analyst at CIBC World Markets), $47, $48, $49, two at $53, three at $54, $55, two at $57, and two at $60 (the high on the Street is from Benoit Poirier, an analyst at Desjardins Securities, as well as Navdeep Malik, the analyst at Industrial Alliance Securities).
Insider transaction activity
Only one insider has been trading shares in the public market, the chairman, president and chief executive officer Alain Bédard.
Between March 4 and June 13, Mr. Bédard has exercised his options and received a total of 685,200 shares at an average cost per share of approximately $10.98, and sold 685,200 shares at an average price per share above $40. His remaining portfolio balance is sizeable at 4,056,668 shares.
Year-to-date, the share price is up 13 per cent. However, in recent weeks, the share price has been under pressure, falling 10 per cent since mid-May. Given this correction, the stock is nearing oversold territory. The relative strength index (RSI) is at 33. Generally, a RSI reading at or below 30 represents an oversold condition.
Looking at key resistance and support levels, there is overhead resistance around $45. After that, there is resistance between $49 and $50, close to its record closing high of $48.70 reached in Sept. 2018. Should the stock price continue to decline, there is strong support around $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.