It’s one-year performance is better than most stocks, but Echelon Wealth Partners analyst Ralph Garcea thinks there is still money to be made on Cargojet (TSX:CJT).
In a research update to clients today, Garcea maintained his “Buy” rating on Cargojet, but raised his one-year price target from $78.00 to $80.00, implying a return of 29 per cent at the time of publication.
Garcea says Cargojet is a way for Canadians to play ecommerce trends and add exposure to the 800 pound gorilla in the space, Amazon.
“Today, Amazon directly accounts for ~5% of core overnight revenues, of which we estimate is larger when considering flow-through volumes,” the analyst says. “We expect this direct number to grow to ~10% over the next few years as AMZN continues to rapidly grow its logistics capabilities in the US and Canada. Prime Day kicks off at 3:00 PM ET on July 16 and runs for 36 hours (up from 30 hours in 2017). Coresight Research estimates global Prime Day sales to generate US$3.4B, growing 40% y/y. Amazon now has ~90M US subscribers according to Consumer Intelligence Research Partners, and carries ~133M active and future sq. ft. of fulfillment space across North America (with ~5M in Canada), with 26 B767s (vs. 24 last year) as part of its Prime Air fleet, and 4 more on the way.”
Garcea says you can expect to see the results of Amazon’s Prime Day in CJT’s third quarter results.
“We believe Prime Day will continue to drive additional consumers to the Prime program, supporting new member registrations, with the expectation that the event this year will mirror the ‘hundreds of thousands’ of new memberships noted from Amazon in the past three years,” he adds. “CJT continues to be a direct Canadian beneficiary of this trend. We have adjusted our near-term estimates up slightly (from $92.6M) due to the increase in fuel surcharge seen in Q218 – we estimate a 6% absolute increase in fuel surcharge y/y based on observed data –and to better reflect the continued robust Canadian e-commerce data. In addition, we expect Q318 results to benefit from another strong Amazon Prime Day.”
Garcea thinks Cargojet will generate Adjusted EBITDA of $121-million on revenue of $418-million in fiscal 2018. He expects those numbers will improve to EBITDA of $130-million on a topline of $439-million the following year.