Although the TSX Composite continues to break new records, not all sectors are benefiting from the broader market rally. In fact, one top Canadian industrial stock is currently down about 45% from its 52-week high as it has been left behind by the market despite maintaining strong operating metrics and a proven track record.
Current macroeconomic pressures and sentiment shifts have weighed on this stock, but its balance sheet strength and long-term outlook suggest the selloff may be overdone. In this article, let’s take a closer look at why this beaten-down industrial stock, TFI International (TSX: TFII), could be an amazing buy-and-hold opportunity.
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TFI International stock
If you don’t know it already, TFI International is one of North America’s largest transportation and logistics companies. Based in Canada, it runs a network of over 100 subsidiaries across the U.S., Canada, and Mexico, covering full-truckload, less-than-truckload, and logistics services.
After diving by nearly 38% year to date, TFI stock trades at $121.38 per share with a market cap of $10.1 billion. It also pays a quarterly dividend with a current annualized yield of 2.1%.
While the stock is down nearly 45% from its 52-week high, it has rebounded over 11% in just the past month, which could signal that the worst might be behind it.
The recent dip was triggered by a mix of weaker volumes across its LTL (less than truckload) and logistics segments and shrinking margins. In the first quarter of this year, TFI’s profit figures came in lower on a YoY (year-over-year) basis.
However, this downturn isn’t because of any internal issues within the company. Instead, it’s mostly the result of a temporary broader slowdown in freight movement across North America. Even with these headwinds, TFI managed to keep generating strong free cash flow and returned nearly $95 million to shareholders in just one quarter.
A look at its recent financials
Despite the recent decline in TFI stock, its operations continue to show strength where it matters. In the first quarter, the company’s total revenue rose 5% YoY to US$1.96 billion. While operating profit declined to US$114.6 million, TFI still posted an impressive 40% jump in its quarterly free cash flow. This shows how efficiently it’s managing capital and costs, even in a tough environment.
More importantly, TFI’s revenue from the truckload segment surged 61% from a year ago due partly to its recent acquisition of Daseke. That offset part of the pressure from its LTL and logistics segments. This shift in revenue mix also explains the company’s short-term margin contraction.
Why this could be a long-term winner
Despite the ongoing freight downturn, TFI International continues to expand its footprint with strategic acquisitions like Basin Transportation and Veilleux Transit. These moves give a boost to its truckload segment, which already saw an 18% YoY operating profit bump last quarter.
The company is also focusing on maintaining a strong fleet, optimizing asset use, and keeping its dividend policy intact. Put simply, TFI stock may look beaten down today, but the long-term story is still very much intact — making it a great buy-and-hold stock.
