TransForce Inc. is added to our list, rated (lower) Strong Buy

TransForce is the largest trucking company in Canada and gets about one third of its revenues from the U.S. It has a very successful track record of both growth by acquisition and of generating strong earnings and cashflow from its operations. It appears to be forecasting flat to slightly negative earnings growth in Q4. And it may be less acquisitive in the next year or two as it digests recent acquisitions and pays down debt. But overall it appears to offer quite good value and it seems reasonable to forecast that it will continue to grow relatively rapidly in the longer term and to achieve high returns on equity.

This is the first time I have had a trucking company on the site in a long time. Way back in late 2001 and early 2002 when Contrans was on our list. We got a big gain on that as it rose 140% in 15 months. It became an Income Trust at that time which pushed up the price. We added it back to the list in early 2004 rated Sell. We did not follow it for long after that as it looked too expensive at that time. Coincidently it was recently purchased by TransForce.

There was no real reason that we went so many years without a trucking company on the Site. I had thought of adding TransForce but until now did not find the time or have enough inclination to do so.

On my recent road trip across Canada I noticed how many trucks were on the road. It seemed like a surprisingly large percentage of the vehicles on the highways are trucks. I can’t guess what percentage other than to say a lot. Most of my driving for many years has been City driving with occasional trips to Calgary from Edmonton and also some driving in the Maritimes on vacations (I flew there but did some highway driving). For whatever reason I just never really thought before that with all those trucks someone was probably making good money in the business. I have also heard that trucking is a huge employer, truck driver is one of the most common occupations. For whatever reason I also always had the impression that trucking was very competitive and not a lucrative business (my Contrans experience notwithstanding). I may have picked up that attitude some decades ago perhaps during a recession or otherwise at a time when some trucking company or other was in the news complaining of poor profits.

In fact, it seems like almost every company will claim that it is in a highly competitive business. Yet it seems like very few companies are losing money (some certainly manage to) and extremely few companies trade at less than book value which one might expect them to do if profits were hard to come by. In fact the ROEs of companies are surprisingly high as I documented a while back.

In addition to TransForce I also hope to add the parent company of Peterbilt. I also noticed on my cross country trip that many communities along the way had a prosperous looking Peterbilt outlook. I started thinking, who services all these trucks? Maybe Perterbilt? I have also long noticed that here in Edmonton there seems to be a lot of very prosperous looking truck dealerships. The parent of Peterbilt is called PACCAR and they build and service trucks under several brand names. It looks to be an interesting company and might be another good addition to our list.




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