Buy CargoJet ahead of Q4 results, Laurentian Bank Securities says

Ahead of the company’s fourth quarter results, Laurentian Bank Securities analyst Mona Nazir thinks there are double-digit returns to be had on CargoJet (CargoJet Stock Quote, Chart TSX:CJT).

In a research update to clients today, Nazir maintained her “Buy” rating and one-year price target of $98.00 on CJT, implying a return of 27.1 per cent at the time of publication.

On CargoJet will report its Q4, 2018 results. Nazir thinks the company will post Adjusted EBITDA of $39.4-million on revenue of $136.3-million in the quarter, ahead of the consensus estimate of EBITDA of $38.5-million on a topline of $130.9-million.

“CJT remains well positioned to continue capturing share in the growing e-commerce market,” the analyst says. “A track record of on-time 98% reliability, established clientele, and market dominance has in turn created high barriers to entry and CJT is the net beneficiary. We believe upside exists via volume growth in its core overnight domestic service, alongside geographic/frequency expansion of its ACMI and charter business (37% CAGR). Amazon Air’s entrance (~40 aircraft) remains topical in client discussions, albeit a risk that is mitigated by the open skies agreement.”

Nazir thinks CargoJet will post Adjusted EBITDA of $144.2-million on revenue of $480.3-million in fiscal 2019. She expects those numbers will improve to EBITDA of $159.3-million on a topline of $502.1-million the following fiscal year.

“(Our target price is) based on an 11x EBITDA multiple, in-line with UPS and FedEx,” the analyst adds. “Versus the entire peer group, CJT’s multiple is 3x higher, which we believe is warranted given their market dominance (~90% share), on time performance and higher margin profile (27% for CJT vs. airline/ cargo comps of 16%). Furthermore, the recent extension of Air Canada and Chorus Aviation’s capacity purchase agreement signals markets’ appetite for consolidation to drive expansion and synergies.”