Executive Summary / Key Takeaways

• TForce Freight's turnaround is reaching an inflection point: After three years as a "rock in our shoes," U.S. LTL operations have shown sequential margin improvement for two quarters, with the claims ratio dropping from 0.9% to 0.7% and missed pickups down over 50% year-over-year. The U.S. LTL network was built for 40,000 shipments per day but currently handles only 20,000, creating massive operating leverage if management can fill the empty doors.

• Daseke (DSKE)'s integration pain is temporary asset indigestion, not structural failure: The specialized truckload segment suffers from excess capacity inherited from Daseke's prior management commitments, but TFI is shedding $20 million of equipment and reducing CapEx to $100-175 million in 2025 (down from a normal $300 million). Margin compression is cyclical and capacity-constrained, setting up 200-300 basis points of improvement when volumes recover.

• Logistics segment is a coiled spring at cyclical bottom: The JHT truck-moving business faces a 40% decline in OEM production, driving operating income down nearly 50% year-over-year. However, new 2027 engine requirements will trigger a "boom year" in 2026, and normalized earnings of $200-220 million (vs. ~$160 million in 2025) are highly visible. This creates a free call option on industrial recovery.

• Strategic redomiciliation and M&A optionality could re-rate the stock: Moving from Canada to the U.S. within 9-12 months aligns the corporate structure with 50% U.S. shareholder base, potentially enabling index inclusion and DoD contracts. Management's pivot from acquisitions to buybacks in 2025 reflects stock undervaluation, but a large U.S. LTL acquisition in 2026 remains the strategic priority, with a truckload spin-off possible by 2027.

• Cash flow discipline provides downside protection while waiting for the cycle: TFI generates over $700 million in annual free cash flow, maintains leverage at 2.4x debt/EBITDA, and returns capital via 4% dividend increases and $67 million quarterly buybacks. This financial resilience means investors get paid to wait for the 2026 freight recovery, with limited risk of balance sheet stress if the downturn persists.

Setting the Scene: A Conglomerate Built for the Cycle

TFI International Inc., founded in 1957 and headquartered in Saint-Laurent, Quebec, has evolved from a Canadian trucking operator into North America's most diversified transportation conglomerate. The company operates across four distinct segments: Less-Than-Truckload (40% of revenue), Truckload (39%), Logistics (21%), and Package & Courier (primarily Canadian). This diversification creates multiple earnings levers that can offset cyclical weakness in any single segment, a critical advantage during the three-year freight recession that has hammered pure-play operators.

The business model is built on acquisition-led density. TFI has completed over 36 acquisitions, with the 2021 TForce Freight purchase (formerly UPS (UPS) Freight) marking its entry into the U.S. LTL market and the 2024 Daseke acquisition expanding specialized truckload capacity. Each deal follows a playbook: acquire underperforming assets, inject operational discipline, optimize networks, and extract synergies. This strategy generates superior returns on invested capital—LTL posted 11.9% ROIC in Q3 2025 despite operational challenges—while creating a moat that organic growth cannot replicate.

TFI's place in the industry structure is unique. Unlike Old Dominion (ODFL)'s pure-play LTL focus or J.B. Hunt (JBHT)'s intermodal dominance, TFI offers end-to-end solutions across the entire freight value chain. It provides customers with bundled services and cross-border expertise that single-segment competitors cannot match. The company's NAFTA/USMCA licenses and cross-border infrastructure create "notably lower transit times" and customer loyalty, supporting pricing power even in weak markets.

The current strategic imperative is fixing TForce Freight. The network was designed for 40,000 daily shipments but runs at half capacity, creating a fixed cost burden that crushes margins. Management has invested in AI planning tools (Optym), new fleet management teams (reducing shop time from 85 to 45 hours), and a Chief Commercial Officer to rebuild the small-medium business segment. These initiatives are showing progress—SMB revenue mix improved to 27.4% in Q3 2025, up from 26.7%—but the segment still operates at a 92.2% OR, well below the long-term sub-90% target.

Technology, Products, and Strategic Differentiation

TFI's core technology advantage lies in its acquisition integration platform and cross-border operational expertise. While competitors struggle with organic network expansion, TFI's playbook allows it to rapidly scale by acquiring underutilized assets and applying standardized operational systems. It transforms "good truckers into good business truckers," as CEO Alain Bedard describes the Daseke transformation. The economic impact is measurable: Daseke's revenue grew "through the roof" post-acquisition, but margins remained "meager" as management shed excess equipment and restructured operations. The payoff comes when capacity tightens and pricing power returns.

The company's AI investment strategy for 2026 focuses on practical applications, not vanity projects. At $30-35 per person per month, these are "light, very nimble tools" that will be expensed rather than capitalized. Applications include sales augmentation to increase salesperson productivity by identifying targets that fit the network and potentially running autonomous yard shunters. These tools address TFI's biggest operational pain points—low network density and high labor costs—while competitors focus on customer-facing gimmicks. If successful, AI could reduce the 2,000 excess doors in the U.S. LTL network and improve the 0.7% claims ratio that management admits "is not good."

Cross-border expertise remains TFI's most durable moat. The company's ability to navigate customs, regulations, and capacity across Canada, Mexico, and the U.S. creates switching costs that domestic-only carriers cannot replicate. It provides stable, higher-margin revenue streams that buffer cyclical downturns in any single market. As tariffs and trade uncertainty increase, customers value reliable cross-border service more highly, potentially allowing TFI to capture share from competitors who lack this capability.

Financial Performance & Segment Dynamics

TFI's Q3 2025 results demonstrate resilience despite a challenging freight market. Total revenue before fuel surcharge fell 11% year-over-year to $1.7 billion, yet adjusted EPS held at $1.20, matching expectations. Management's cost discipline and operational improvements are offsetting volume declines, preserving earnings power while waiting for the cycle to turn. Free cash flow of nearly $200 million in the quarter brought year-to-date total to over $570 million, "slightly above the 9-month results from 2024," proving the cash generation engine remains intact.

The segment performance reveals a tale of three cycles. LTL revenue declined 11% to $687 million, but operating income improved sequentially for the second quarter, with the U.S. OR holding steady at 92.2% versus 94% in Q2. The turnaround is gaining traction despite weak volumes. Truckload revenue fell 5% to $684 million, with OR deteriorating to 92.3% from 90.6% due to Daseke's excess capacity. However, management is actively shedding assets and expects financial integration to complete by year-end, setting up margin expansion when industrial demand recovers. Logistics revenue plunged 14% to $368 million, with operating income down nearly 50%, but this segment is a "diamond" that will shine when OEM production rebounds in 2026.

The balance sheet provides strategic flexibility. Funded debt-to-EBITDA stands at 2.4x, well within management's target of 2.0-2.1x for year-end. It allows TFI to pursue the large U.S. LTL acquisition management desires in 2026 while maintaining investment-grade flexibility. The company returned over $100 million to shareholders in Q3 via $67 million in buybacks and a 4% dividend increase, demonstrating capital discipline. With $6.4 billion in cash and short-term investments (implied from strong FCF and low leverage), TFI has dry powder for opportunistic deals.

Outlook, Management Guidance, and Execution Risk

Management's Q4 2025 guidance reflects caution but not panic. Adjusted EPS is projected at $0.80-0.90, well below the $1.19 consensus, with embedded U.S. LTL OR of 96% and specialized truckload OR of 93-94%. It sets a low bar that should be easy to clear if operational improvements continue, creating potential for positive surprises. The guidance assumes "no significant change either positive or negative in the actual operating environment," which seems conservative given early Q4 weakness from the government shutdown.

The 2026 outlook is where the thesis gets compelling. Management expects a "200 basis point globally improvement, 200 to 300 basis points versus what we are delivering in '25 into '26" even in a flat volume environment. Margin expansion is structural, not just cyclical. Drivers include capacity constraints from CDL restrictions, English proficiency requirements, and 40% decline in truck sales, plus OEM production rebound from new engine standards. If volumes recover even modestly, operating leverage could drive earnings well above current expectations.

Execution risk centers on three factors. First, TForce's service improvements must continue—second and third-day service remains below peer levels, and pricing is still "a discounter" at 3.33% lower revenue per hundredweight. Second, Daseke's cultural transformation must accelerate—management needs to shed excess equipment and instill profitability discipline before the market recovers. Third, the redomiciliation must proceed smoothly—any delays could push back index inclusion and DoD contract benefits.

Risks and Asymmetries

The most material risk is that the freight recession extends beyond 2026. If industrial production doesn't recover, TFI's excess capacity becomes a permanent drag, and margin improvement stalls. The stock's valuation assumes cyclical recovery; a structural downturn would require deeper cost cuts and potential asset impairments, pressuring the balance sheet.

TForce's turnaround could falter. If service improvements don't reach peer levels, TFI will remain a price taker, unable to fill its 20,000-shipment gap or justify market-rate pricing. The 0.7% claims ratio, while improved, still far exceeds Canada's 0.2% benchmark, indicating operational gaps that could persist. This would cap margin expansion and delay the sub-90% OR target indefinitely.

The Daseke integration faces cultural headwinds. Transforming "good truckers to good business truckers" requires changing mindsets, not just systems. If management cannot instill profitability discipline, the specialized truckload segment will remain stuck at 92-93% OR, well below the 85% long-term goal. This would limit ROIC and make a truckload spin-off less attractive.

On the upside, tariff resolution could accelerate recovery. Management notes that "if you don't know the rules, everybody sits on the sidelines." A trade deal with Canada would unlock cross-border volumes, while clarity on steel/aluminum tariffs would boost industrial production. It could drive volume growth above management's flat-environment assumptions, creating powerful operating leverage on TFI's fixed-cost base.

Valuation Context

At $95.75 per share, TFI International trades at 0.99 times sales and 11.58 times free cash flow, with a 7.64% operating margin and 4.06% net margin. The stock prices in near cyclical trough levels despite strong cash generation and operational progress. The company's $700 million annual free cash flow implies a 9% free cash flow yield, providing downside protection while investors wait for the 2026 recovery.

Peer comparisons highlight the discount. Old Dominion trades at 5.79 times sales with 25.66% operating margins, while Saia (SAIA) trades at 2.71 times sales with 14.13% margins. TFI's diversification justifies a lower multiple than pure-play LTL operators, but the gap appears excessive given its cross-border moat and acquisition track record. J.B. Hunt trades at 1.51 times sales with 7.95% operating margins, similar to TFI's profile but without the same turnaround upside.

The balance sheet supports valuation. With 2.4x debt/EBITDA and strong cash generation, TFI has capacity for the large U.S. LTL acquisition management seeks in 2026. The 1.96% dividend yield and active buyback program provide immediate returns while the turnaround story plays out. If margins recover 200-300 basis points as guided, earnings power could increase 30-40% even without volume growth, making the current multiple appear conservative.

Conclusion

TFI International represents a rare combination of cyclical recovery potential, operational turnaround progress, and strategic optionality at a discounted valuation. The three-year freight recession has masked meaningful improvements in TForce Freight's service quality, Daseke's asset rationalization, and the Logistics segment's cyclical positioning. Management's guidance for 200-300 basis points of margin improvement in 2026, even in a flat volume environment, suggests the earnings power is substantially higher than current depressed levels.

The key variables to monitor are TForce's service metrics reaching peer levels, Daseke's cultural transformation accelerating, and the timing of the industrial recovery. If these align, TFI's diversified model and cross-border moat should drive earnings well above expectations, while the redomiciliation and potential large M&A provide additional catalysts. With over $700 million in annual free cash flow and a disciplined balance sheet, investors are paid to wait for the inflection, making the risk/reward compelling at current levels.