TFII Stock Is Rising, But I’m Worried About This 1 Thing

TFII (TSX:TFII) stock is in a strong position heading into earnings, up 10% in the last month. But there’s one thing to continue watching.

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Shares of TFI International (TSX:TFII) stock are on the rise, up 10% in the last month alone. It comes what could be just in time for the transportation and logistics company. The stock is set to release second-quarter results for 2024 on July 25. But that doesn’t mean there is a completely rosy picture. So, let’s look at what has been driving this recent increase and the one thing to keep on your radar.

What happened?

First, let’s look at what’s driving the recent growth. Shares of TFII stock have risen by approximately 10% over the past month, primarily due to the announcement of a significant acquisition. TFI International agreed to acquire Daseke, a major player in the flatbed and specialized transportation sector, for about US$1.1 billion. This strategic acquisition is expected to bolster TFI International’s market position and expand its operational capabilities, particularly in the United States.

Additionally, positive investor sentiment has been supported by strong financial performance and favourable market conditions. Despite challenges in revenue growth and profitability in recent quarters, TFI International’s ability to generate substantial free cash flow and its proactive dividend policy, including a recent 14% increase in its quarterly dividend, have also contributed to the stock’s upward momentum.

Add in future earnings around the corner, and investors are keen to get in. But before you become one as well, there’s one thing to consider.

Buying, but still in debt

TFII stock might be doing well in terms of share price, but issues remain. The biggest? The company’s debt. TFI International carries a substantial amount of debt. As of the latest reports, the company has US$4.02 billion in total debt, resulting in a net cash position of -US$2.79 billion. This debt load gives it a debt-to-equity ratio of 1.14. The high level of debt is a concern because it could limit the company’s financial flexibility and increase vulnerability to market fluctuations.

Furthermore, TFII stock’s revenue isn’t exactly paying it down. TFI International’s revenue growth has been modest and somewhat volatile. For the first quarter of 2024, the company reported revenue of US$1.87 billion, which is a slight increase of 1.1% year over year. 

However, the company’s annual revenue for 2023 was US$7.52 billion, a decrease of 14.65% from US$8.81 billion in 2022. This decline was primarily attributed to weaker market demand and the sale of TFI in 2022.

Bottom line

So, what should TFII stock do? It should reduce debt. TFI International has announced a plan to reduce its debt by US$500 million to US$600 million over the coming year. This aggressive debt-reduction strategy is a key component of their financial management approach to improving their balance sheet and financial stability.

Furthermore, the company aims to leverage its strong free cash flow, which is projected to be between US$825 million and US$900 million for the full year 2024. This free cash flow is expected to support both operational needs and debt repayment efforts. Altogether, earnings should be quite interesting for TFII stock this month. But I would hold out until the report fills us in on the company’s current debts.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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