Business Focus:

TFII International (TFII): TFII operates as one of the leading Canadian diverse transportation operators. TFII’s playbook for growth and value creation is through acquisition strategy and consolidating a large, highly fragmented industry. The company has a successful track record of acquiring companies, fixing and integrating them into its decentralized network of operating segments to create scale realize synergies and allow them to run independently within a highly decentralized organization. The freight industry is currently in a downturn due to struggling volume growth and limited price increase ability. However, TFII has shown some early signs of the bottom in the industry cycle and could see an upside recovery in the near term.

Old Dominion Freight Line (ODFL):The company provides regional, inter-regional and national less-than-truckload (LTL) transportation services through its extensive network of service centers located across the U.S. ODFL is the second-largest LTL operator in the US market through consistent, aggressive reinvestment over multiple years. ODFL has been one of the solid compounders in the freight industry, the value creation playbook is to expand the network to achieve scale, capture more market share and focus on operating efficiency. Similar to other players, ODFL’s business is highly sensitive to the macroeconomic, and the company is currently also in the. Due to the track record of organic growth and high internal rate of reinvestment, ODFL has always been valued at a premium relative to other carriers. 

Financial Performance:

In terms of valuation, as mentioned earlier ODF has always been trading at a premium relative to both TFII and other operators in the freight industry due to its consistent operating results over the years, and decent track record of growing the business organically along with strong balance sheet and healthy capital returns history. While TFII continues to heavily deploy capital towards acquisitions, ODFL started to slowdown capital investment and increase dividend/share buyback in recent years. While both companies are currently in the industry down cycle, both have been through cycles before and came out stronger, we expected ODFL and TFII could take advantage of the downturn to play offence by taking the market and acquiring less efficient operators. Both are trading at a fair valuation compared to their historical averages given the sector overall is under pressure. ODFL is trading at a slight premium relative to TFII, but we think the premium valuation made sense given its strong organic growth profile.

Financial Metrics and Forward Estimates:

The table below compares the financial metrics and stats between ODFL and TFII. ODFL is much larger in size relative to TFII, TFII’s growth going forward is stronger due to the integration of recent large deals. Both companies are forecasted to come out of the downturn soon. ODFL’s profitability is more attractive in terms of net margin, gross margin and return on equity (ROE), while also employing less leverage compared to TFII. 

Investment Outlook:

Both ODFL and TFII are solid operators in the freight industry. Despite different approaches when it comes to value creation, both companies have managed to reward shareholders handsomely over the years.

Both could do well from these levels given the recent drawdown in share price. On a growth basis, both companies are quite different in terms of outlook with expected growth in revenues, this is largely because TFII is in the process of consolidating the recent acquisitions into their financials while ODFL does not. Both companies are balancing between growth projects and capital returns over time.

Comparing ODFL and TFII can be summarized by whether an investor places more importance on organic growth or acquisitive growth. ODFL is more expensive than TFII due to a stronger fundamental profile. That said, growth for both companies will be dependent on the health of the economy and freight industry over the next few years, we are a big fan of both companies and would be comfortable holding both for the long term.

Unlock the Power of Informed Investing with 5i Research!

DIY investing doesn't have to mean going it alone. At 5i Research, we're your trusted partner in navigating the stock market. Our platform offers comprehensive stock and market research, empowering you to make smart investment decisions. 

• Investor Q&A: Have burning questions? Get answers from our team of experts and fellow investors in our dedicated Q&A section.
• Research Reports: With over 60 meticulously researched Canadian stocks, our reports offer in-depth analysis, giving you the confidence to invest wisely. 
• Model Portfolios, Alerts, Forums, Portfolio Tracking, and Much More...

Take Care,

Employees, directors, officers, related companies, the i2i Fund and/or partners of 5i Research do not have a financial or other interest in ODFL and TFII at the time of publishing.