2023-04-28 16:53:15
Bombardier’s quarterly results pleased analyst Cameron Doerksen of National Bank Financial. (Picture: courtesy)
What to do with titles from TFI International, Meta Platforms and Bombardier? Here are some recommendations from analysts likely to move prices soon. Note: the author may have a totally different opinion from that expressed by the analysts.
TFI International (TFII, $138.49; NY, US$101.88): Decline in freight volumes hits
The trucker navigated weak freight demand well in the first quarter, judged Fadi Chamoun of BMO Capital Markets, but “worsening economic turbulence” is forcing TFI to cut its outlook.
Indeed, the seasonal recovery in volume typically seen in March and April is not materializing.
The former Transforce now expects poor economic conditions to persist well into 2023, particularly in the LTL segment in the United States, which will delay the expected improvement in the cost/income ratio ( which expresses the operating expenses as a proportion of the revenues) of this division.
LTL transportation allows truckers to combine loads from multiple customers into a single shipment.
As a result, TFI is lowering its annual forecast by around 5%. The expected profit goes from a range of US$7.50-7.60 to another of US$7-7.25, around 4% below consensus.
The company now expects to generate free cash flow of US$700-800 million in 2023, down from the original target of US$800 million.
These new annual guidance calls for the trucker to spend US$300 million on targeted acquisitions and share buybacks, two elements missing from its original outlook, suggesting that its guidance would have fallen further without these two measures.
Fadi Chamoun believes it will be difficult for the LTL division to improve its cost/income ratio in the second and third quarters as expected. TFI is aiming for a coefficient of 90-92% in 2023 compared to 92.6% in the first quarter.
“TFI should be able to mitigate the impact of declining volumes on its operations by migrating ex-UPS Freight to its own platform, but we believe the cost/income ratio improvement will be more gradual than expected over the medium term,” foresees the analyst.
The trucker has completed five purchases since the start of the year and is eyeing two other larger transactions in the coming quarters. The American group which operates 240 LTL transport service centers ArcBest (ARCB, US$80.80), in which TFI has a 4% stake, is still in the crosshairs although investors dare not believe it.
“TFI has generated value through its acquisitions in the past. There is therefore a good appetite on the part of investors for a transformational transaction, particularly in the American split-lot segment where there are few caliber players,” explains Fadi Chamoun.
In the end, the BMO analyst reduced his forecast from US$7.26 to US$6.92 per share for 2023 and from US$8.75 to US$8.10 for 2024. He also lowered his target price from $115 to $105. US, or 8 times operating profit.
At the current price, the stock offers a “balanced” risk-reward ratio and limited upside potential. It therefore does not recommend its purchase.
Dominique Beauchamp
Meta Platforms (META, US$237.17): an artificial intelligence ecosystem for the future
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