We think the industry is closer to the bottom than the top, and a recovery may take longer to happen. This is a time where investors need patience, conviction and trust in the management team given their track record. TFII’s capital allocation strategy remains largely unchanged over the years, and the company continues to balance the growth of the business and capital returns. Organic investment and especially acquisitions continue to be the number one priority, while TFII maintains an opportunistic approach towards share buyback. This is an industry-wide cycle, given that the company has been through multiple cycles before. We think the company can eventually come out the other side to grow again. That being said, we are open to changing our minds if the situation worsens. For now, we are maintaining our rating at ‘B+’.

CCL.B possesses a solid track record of growing dividends per share by around 17% annualized in the last ten years. That being said, uncertainty around the trade war and geopolitical tension in the Middle East could have a negative impact on CCL.B’s business in the near term, given the company’s global operations. Despite the relative underperformance in CCL.B’s share price from 2017, which was largely due to the starting valuation at that time, CCL.B’s fundamentals continues to improve and grow since then and the long-term performance in terms of total returns is quite decent if investors look out 20 years, which CCL.B manages to provide investors an annualized return of 16% across economic cycle. We think the current setup is quite attractive, given a fair valuation, a consistent growth in EPS and especially a more aggressive pace of share buyback. We think that although there is some near-term uncertainty, the resiliency and longevity of the business could help the company weather any volatility; we are maintaining our rating of a ‘B+.’

The company is benefiting from secular tailwinds like aging infrastructure, water security, and energy transition. It has a strong track record of organic growth and strategic acquisitions, and it has a solid pipeline of acquisitions along with a high backlog. It trades at a premium valuation to its peers, but we feel this is reflective of its operational performance, margin expansion, and long term tailwinds. While we feel that its price may need to move sideways in the intermediate term to help its multiples contract, we are upgrading the name by one notch to a ‘A-’ due to its strong track record of execution.