Despite the broader market weakness, TFI International (TSX:TFII) is continuing to perform well in 2023 after witnessing minor losses of 4.4% last year. TFII stock has risen by nearly 18% this year so far to currently trade at $159.82 per share with an annualized dividend yield of 1.2%. In comparison, the main TSX index has seen a 1.7% decline year to date.
With this, TFII stock has delivered a robust 255% return over the past five years, excluding its dividends. Can it sustain this performance over the next five years? Before delving into that, let’s quickly look at the key factors that have driven the strong rally in TFI International’s share prices recently.
TFI International stock
TFI International is a Saint Laurent-headquartered company with a market cap of $13.7 billion that provides transportation and logistics services in Canada and the United States. The company operates across various segments, including package and courier, less-than-truckload, truckload, and logistics, providing a diversified revenue stream.
Even as COVID-19-related restrictions hampered most businesses globally, TFI’s transportation and logistics business remained largely unaffected by the pandemic as it continued to post solid growth in its revenue and earnings with the help of new acquisitions and better pricing.
To give you an idea, TFI’s total revenue soared by 141% in the five years between 2017 and 2022. More importantly, the company’s adjusted earnings during the same five-year period surged by about 400%. Similarly, its adjusted annual net profit margin expanded significantly from 4.1% in 2017 to 8.3% in 2023.
Overall, TFI’s strong financial growth in recent years can be attributed to its focus on quality acquisitions, operational efficiencies, and effective capital management. Looking at its outstanding financial growth trends, it’s clear why TFII stock has staged a spectacular rally in the last few years.
Where will TFII stock be in five years?
In the first three quarters (ended in September) of its fiscal year 2023, TFI International has struggled due to weaker demand and changing market conditions amid slowing global economic growth. Its total revenue in the nine months ended in September 2023 has gone down by about 19% year over year, while its adjusted earnings have seen a drop of about 29%. On the positive side, despite macroeconomic challenges, the company managed to maintain a respectable adjusted net profit margin of 7.1% in the third quarter.
That said, TFI International has a long history of identifying and executing quality acquisitions that contribute to its growth and expansion. The company aims to create value for its shareholders by identifying these acquisition opportunities and managing a growing network of subsidiaries. Interestingly, TFI has already announced 11 acquisitions this year, reflecting its consistent focus on an aggressive acquisition strategy.
Although the recent weakness in TFI’s financial growth trends could potentially drive its stock price lower in the near term, the company’s strong balance sheet will allow it to continue focusing on acquiring more logistics and transportation companies despite macroeconomic challenges, making its long-term fundamental outlook brighter. Given that, I expect TFI’s financial growth to improve further in the coming years, especially as macroeconomic challenges begin to subside. This improvement could potentially help TFII stock post even better returns in the next five years than it did in the previous five.
