Cross-Border Freight And Digital Efficiency Will Drive Long-term Value

Key Takeaways

• Expansion in North American freight and operations efficiency initiatives are expected to enhance growth, margins, and free cash flow as economic conditions improve.
  
• Regained high-margin clients and disciplined capital use position the company for long-term earnings gains and strategic consolidation opportunities.
  
• Persistent weak freight demand, limited acquisition opportunities, pricing pressures, excess capacity, and rising industry costs threaten ongoing revenue, margin, and earnings growth.

Catalysts

Provides transportation and logistics services in the United States, Mexico, and Canada.

• Rising domestic and cross-border freight activity driven by North American reshoring/nearshoring and potential resolution of tariff uncertainties is expected to unlock volume growth, especially for profitable U.S.-Canada LTL trade lanes and specialized truckload; this will boost revenue and operating earnings as the macro cycle turns.
  
• Continued investments in operational efficiency-including digitalization (Optym rollouts for linehaul and P&D), AI-driven process improvements, and a focus on asset-light brokerage models-are reducing costs, improving margins, and supporting higher free cash flow conversion as volumes recover.
  
• Successful regeneration of the U.S. LTL salesforce and improving service quality (notably in next-day delivery and reduced missed pickups) are helping to reclaim high-margin SMB clients, setting the stage for future yield improvement and higher net margins as customer confidence strengthens over multiple quarters.
  
• The strong free cash flow generation-supported by disciplined CapEx, cost controls, and effective working capital management-enables accelerated share buybacks and ongoing dividends, driving per-share earnings growth independent of the near-term revenue environment.
  
• Strategic integration and future potential for disciplined, accretive M&A (once management proves control over U.S. LTL) will allow TFI to capitalize on market fragmentation and scale advantages, setting up long-term EPS and operating income growth as secular e-commerce and domestic supply chain trends continue.

TFI International Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming TFI International's revenue will grow by 6.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.1% today to 9.0% in 3 years time.
• Analysts expect earnings to reach $882.4 million (and earnings per share of $10.23) by about August 2029, up from $335.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 19.1x on those 2029 earnings, down from 33.0x today. This future PE is lower than the current PE for the CA Transportation industry at 26.8x.
• Analysts expect the number of shares outstanding to decline by 1.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.8%, as per the Simply Wall St company report.

Risks

• Prolonged weak industrial and freight demand in North America-TFI continues to experience depressed volumes and a sluggish industrial freight environment, and both management and analysts signaled that any recovery may not occur until late 2025 or 2026. This overexposure to cyclical, sector-specific slowdowns could reduce revenues and net income for several more quarters.
  
• Diminished acquisition-driven growth opportunities-Management indicated limited M&A opportunities and a current focus on share buybacks due to high valuations and lack of attractive targets, suggesting that TFI may struggle to sustain its historical pace of revenue and earnings growth via acquisitions.
  
• Difficulty capturing price and yield improvements in U.S. LTL-Despite operational improvements, TFI's U.S. LTL segment faces ongoing pricing pressure and yield declines (down nearly 7% year over year), with management acknowledging it will take several quarters of consistent service enhancement before shippers reward TFI with improved rates, delaying margin and EPS expansion.
  
• Excess capacity and lingering inefficiencies-TFI admitted to thousands of surplus doors, excess trucks and trailers, and underutilized assets, particularly in the U.S. LTL segment; slow asset rationalization and competition from better-optimized peers could continue to depress operating margins and return on invested capital.
  
• Potential for long-term cost inflation and regulatory headwinds-While not a focus of the call, industry-wide risks such as rising labor and insurance costs, tightening emissions regulations, and necessary capital investment in technology and sustainability threaten to add pressure to net margins and cash flow if not proactively managed by TFI.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of CA$236.51 for TFI International based on their expectations of its future earnings growth, profit margins and other risk factors.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$261.75, and the most bearish reporting a price target of just CA$184.12.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be $9.8 billion, earnings will come to $882.4 million, and it would be trading on a PE ratio of 19.1x, assuming you use a discount rate of 7.8%.
• Given the current share price of CA$189.39, the analyst price target of CA$236.51 is 19.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.