LRT Capital: “We Expect Earnings to Rise Sharply at TFII Over the Next Twelve Months”

LRT Capital Management, in its Q1 2021 investor letter, mentioned TFI International Inc. (NYSE: TFII), and shared their insights on the company. TFI International Inc. is a Montreal, Canada-based transport company that currently has an $8.8 billion market capitalization. Since the beginning of the year, TFII delivered an 85.89% return, extending its 12-month returns to 216.75%. As of May 28, 2021, the stock closed at $95.88 per share.

Here is what LRT Capital Management has to say about TFI International Inc. in its Q1 2021 investor letter:

TFII International (formerly known as Transforce) is a recent addition to our portfolio – it is a Canadian logistics company with exceptional management operating in a consolidating industry. TFII came to our attention when they announced their purchase of the US operations of UPS Freight on January 25th, 2021. The company has a long history of growth through acquisition. Long time CEO Alain Bedard is fond of telling investors that he would rather own Scotiabank and get a 3% dividend than make deals that result in 3% returns11. This Canadian company also recently dual-listed in the United States.

UPS Freight, recently acquired by TFII, is a less-than-truckload (LTL) operation. LTL operations can build scale-based cost advantages as they require the consolidation of shipments in local hubs. This lends LTL operators to develop competitive moats based on local network density creating barriers to entry, as opposed to pure long-term trucking which is open to competition from anyone able to lease a truck. Pure play LTL companies such as SAIA, Inc. (SAIA) and Old Dominion Freight Line (ODFL) have historically generated very attractive returns for shareholders. Prior to the announced acquisition TFI already generated excellent returns for shareholders through very efficient operations and good capital allocation. Through the acquisition of UPS Freight US, the company immediately becomes one of the largest players in the US LTL market. The relatively low price paid for the asset (5.3x EBITDA pre-synergies, and the fact that UPS is taking a $500 million accounting charge on the deal) suggests TFII got a good deal. ODFL and SAIA both trade at over 15x EV/EBITDA.

We expect earnings to rise sharply at TFII over the next twelve months as the economy accelerates postCovid. Shares are up 49.08% year-to-date. We believe the shares are undervalued at 31.21x forward earnings. We are currently also long shares of Saia, Inc. (SAIA), the LTL operator headquartered in Georgia, based on the same investment thesis. Shares of Saia, Inc., are up 29.43% year-to-date.”

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Our calculations show that TFI International Inc. (NYSE: TFII) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the first quarter of 2021, TFI International Inc. was in 19 hedge fund portfolios, compared to 10 funds in the fourth quarter of 2020. TFII delivered a 37.32% return in the past 3 months.

The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

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Disclosure: None. This article is originally published at Insider Monkey.