In today’s content analysis (Download), we will discuss TFI International, a recent buy in the Canadian model portfolio which announced Q2 earnings results yesterday. TFI, is a North American leader in the transport and logistics sector with operations in 4 main segments: Package and Courier, Less-Than-Truckload, Truckload, Logistics and Last Mile. A large contributor to the growth of the company comes from takeovers of smaller trucking companies which later continue to operate as TFI’s subsidiaries.
Q2 2018 Earnings Release
On July 26th, TFI reported EPS of $0.99 (vs. $0.70) leading to an earnings surprise of 41% on revenues of $1.3B (vs. $1.2B). The guidance is positive with fiscal year-end EPS expectations between $3.21-$3.29 vs analyst expectations of $2.94. These results caused the stock price to increase 13% at market open on Friday July 27.
EVA Analysis
The company has had a YTD return of approx. 30% and a current SPscore of 66% which has increased since last quarter. Many factors affect the score, but some of the main ones are the net operating profit after tax (NOPAT) which increased by 17.38% per year on average and the rising return on capital which currently stands at 13.6%. Furthermore, invested capital has been decreasing YOY since 2016 and the NOPAT was increasing over this period, hence, leading to improved performance that was shown in the rising economic performance index from 0.98 (in 2016) to a current ratio of 1.73.
Further analysis of the company’s balance sheets reflects a decrease in Free Cashflow (FCF). FCF gives us a sense of how much cash is left over after the company pays its expenses. The cash left is used for paying dividends and pursing projects that can add-value to the shareholders. In the case of TFI, the fall in FCF is largely due to the $294M of debt paid.
The improved performance gives TFI a spot in the top 5 companies in the Canadian Industrials sector. Furthermore, as seen in the EVA executive summary, the stock is doing well given by the EVA trend and is undervalued by both the P/IV and FGV metrics. This fact implies a great opportunity and great time for entry.
