The S&P/TSX Composite Index is down more than 5% year to date through November 27. TFI International (TSX:TFII), the owner of Canpar, Clarke Transport, Quik X Transportation and many other shipping-related brands, is up almost 33% in the same period.
I haven’t written a lot about TFI in 2018, but it’s undoubtedly one of the success stories on the TSX in a year that’s seen a lot of casualties — think Dollarama, down a whopping 35% in 2018 — so it’s doing a lot right in the minds of Canadian investors.
Several of my Foolish colleagues are high on TFII stock. Some believe it’s a value play, while others see it as a growth or momentum play. Up more than 30% on the year, it’s hard to argue with their logic.
It’s a growth play
Fool contributor Mat Litalien discussed TFI’s growth in early November, highlighting the fact that the company grew operating income by 107% in the third quarter with a nice 540 basis-point increase in its operating margins.
Equally impressive, TFI beat analyst earnings estimates by 20 cents, the fourth consecutive quarterly beat of 20% or more. How’s that for growth?
On the top line, revenue grew 9.4% in the third quarter to $1.29 billion from $1.18 billion a year earlier. Steady, if not spectacular sales growth, but who’s counting when you’re doubling the bottom line.
What stands out for me is the growth in its free cash flow. In the decade between 1997 and 2017, TFI grew free cash flow 15.7% compounded annually. It went from nothing to $376 million in 10 years.
Why is this important?
In the first nine months of 2018, TFI paid out $55.6 million in dividends to shareholders and repurchased $77.7 million of its stock returning $133.3 million in capital to shareholders.
Free cash flow in the period was $235.8 million in the first nine months of the year. Without it, shareholders don’t get paid.
It’s that growth that really matters.
It’s a value play
There are traditional value metrics such as low price-to-earnings or price-to-cash flow ratios, and then there are intangibles that don’t make it into a financial analysis of a company’s stock.
For me, the biggest intangible adding tremendous value to TFII stock is CEO Alain Bedard. In my most recent article about the company in February, I said that Bedard is one of the few CEOs in Canada that impresses me.
An accountant by training, he made it up Saputo’s corporate ladder all the way to VP of Finance before buying a bankrupt Quebec trucking firm in 1996. It went on to become TransForce and then TFI International, the company name it adopted in December 2016.
TFI is a company built on acquisitions. It’s made 66 since 2008. In many ways, Bedard is the shipping version of Premium Brands CEO George Paleologou, a chief executive I consider to be one of the best anywhere.
Getting back to traditional valuation metrics, TFII currently has a forward P/E ratio of 11.2 and P/CF ratio of 8.1. By comparison, United Parcel Service has a forward P/E and P/CF of 14.1 and 15.0, respectively.
So, yes, it does possess some value attributes.
It’s growth at a reasonable price
As my colleague suggests, TFI is a triple threat.
It provides investors with growth (free cash flow up 15.7% annually over past decade), value (it trades for less than peers), and income (TFI’s increased its annual dividend payment over the past five years by 9% annually).
Plus, it’s got Alain Bedard as CEO.
What more could you ask for?
When you buy heavily cyclical stocks at low prices… and then hold the shares until the cycle reaches its peak… you can make a very healthy profit.
Every investor knows that. But many struggle to identify the best opportunities.
Except The Motley Fool may have a plan to solve that problem! Our in-house analyst team has poured thousands of hours into their proprietary research – and this is the result.
Our top advisor Iain Butler has just identified his #1 stock to buy in 2018 (and beyond).
The last time this stock went from the low point of its cycle to the peak… shares shot from $12 to $40 inside of 4 years. That’s an 300%-plus return. And if you missed out on that ride, today might just be your second chance.
Fool contributor Will Ashworth has no position in any stocks mentioned