Even as macroeconomic uncertainties have driven the Canadian stock market lower of late, shares of TFI International (TSX: TFII) continue to outperform the broader market in 2023. At the time of writing, TFII stock was up around 15% year to date against the TSX Composite benchmark’s minor 1.7% gain.
In this article, we’ll dive deeper into TFI International’s recent financial growth trends to understand whether its stock can continue to surge. But first, let’s take a quick look at some factors that have driven TFII stock higher in recent years.
TFI International stock
If you don’t know it already, TFI International is a Saint Laurent-based company with a market cap of $13.3 billion, as its stock trades at $155.23 per share after rallying by 243% in the last five years. TFI provides transportation and logistics services across Canada and the United States through its over 90 operating subsidiaries. TFII stock offers a 1.2% dividend yield at the current market price and distributes its dividend payouts every quarter.
Strong demand for transportation and logistics services and TFI’s consistent focus on quality acquisitions have accelerated its financial growth in recent years. To give you an idea, the company’s total revenue rose 141% to US$8.8 billion In five years between 2017 and 2022. More importantly, improved pricing for its services drove its adjusted annual earnings up by around 400% during these five years to US$8.02 per share.
These outstanding long-term financial growth trends explain why TFII stock has staged a strong rally in recent years despite facing COVID-19-related operational challenges in between.
The recent weakness in demand
The ongoing macroeconomic challenges, due mainly to high inflation and rapidly rising interest rates, have forced businesses across the globe to take cost-cutting measures and save funds to navigate the period of economic uncertainty. This is one of the key reasons why the demand for logistics and transportation services has weakened of late, affecting the financial growth trends of most transportation companies, including TFI International.
This challenging market environment is responsible for driving TFI International’s total revenue down by 19% YoY (year over year) in the first three quarters of 2023 combined to US$5.6 billion. Similarly, lower freight volumes and some one-time costs also drove its adjusted earnings down by 28.7% YoY during the first nine months of 2023 to US$4.49 per share.
In the full year 2023, TFI International expects its annual earnings to decline by 19-25% in the range of US$6 to US$6.50 per share but still expects to deliver free cash flow in the US$700-US$800 million range.
Can TFII stock continue surging?
As the recent demand weakness has affected TFI International’s business growth in 2023, the possibility of TFII stock remaining volatile in the near term remains open.
Nonetheless, we shouldn’t forget that this demand softness is primarily due to the ongoing temporary economic woes. That’s why I expect the demand for logistics and transportation services to witness big improvements as soon as the economic uncertainty gradually starts to subside in the future, which should help TFI’s already profitable business to flourish further. Given that, despite the short-term challenges, its strong long-term growth outlook could help this dividend-paying stock continue outperforming the broader market in the long run.
