Sometimes, the market simply overreacts. That’s especially common in cyclical sectors like industrials, where earnings can fluctuate based on macro trends.
And that’s exactly the kind of situation TFI International (TSX:TFII) seems to be in right now. The stock currently trades 45% below its 52-week high at $120.87 per share with a market cap of $10.1 billion. At this market price, it offers a 2% annualized dividend yield.
While it’s true the past year hasn’t been easy for the Saint-Laurent-based transportation and logistics firm, its long-term fundamental outlook remains intact, which could help it rebound. In this article, I’ll explain why this industrial stock might be one of the better recovery bets available right now and why long-term investors may want to consider it today.
Still a major force in North American freight
TFI is one of North America’s largest transportation and logistics firms, operating across Canada, the U.S., and Mexico. It manages over 100 subsidiaries, which offer services in less-than-truckload (LTL), truckload, and logistics segments.
It’s worth noting that the broader freight and logistics industry has been under pressure in recent quarters due to weaker demand across markets. But the good part is, the recent pullback in TFI stock has little to do with the company’s long-term fundamentals.
In the first quarter, the company’s revenue rose 5% YoY (year-over-year) to US$2 billion with the help of new business acquisitions. However, its adjusted quarterly net profit fell sharply to US$64.2 million. This decline came mostly from volume softness in end markets, which also weighed on TFI’s profitability in its LTL and logistics segments.
Interestingly though, its truckload segment was a bright spot. Thanks to TFI’s recent Daseke acquisition, the segment’s revenue jumped 61% YoY, and operating profit rose 18%. Also, the company managed to increase free cash flow by 40% from a year ago to US$191.7 million, a positive sign that it’s still efficient at turning operations into cash even in a slow patch.
Positioned to ride the next upcycle
While the logistics industry has faced challenges in recent years, TFI has been actively preparing for the next growth phase. And that’s what makes it a top industrial stock to buy right now.
During the first quarter, it returned US$94.4 million to shareholders, with US$38.2 million paid as dividends and another US$56.2 million used for share buybacks. The company also hiked its quarterly dividend by 13% over last year’s payout. Moves like these reflect confidence in its future cash flow, even while the freight market goes through a rough patch.
TFI is also balancing its cost discipline with smart growth. For example, the company has increased its focus on operating efficiencies and making targeted acquisitions that could improve its scale. Just after the first quarter ended, it acquired two more businesses, Basin Transportation and Veilleux Transit, which are expected to strengthen its truckload segment.
And with access to nearly US$1 billion in revolving credit, TFI has enough room to act quickly when opportunities pop up. Overall, this industrial stock may be down, but its long-term strategy is solid. For investors hunting for a value stock in industrials, it’s definitely worth considering at current levels.
