CargoJet gets price target raise to street high $105.00 at Echelon

Following the company’s fourth quarter results, Echelon Wealth Partners analyst Gianluca Tucci has raised his target price on CargoJet (CargoJet Stock Price, Chart TSX:CJT).

On Wednesday, CargoJet reported its Q4 and fiscal 2018 results. In the fourth quarter, the company posted Adjusted EBITDA of $40.2-million on revenue of $132.6-million, a topline that was up 12.2 per cent over the same period last year.

“Cargojet continued to produce strong revenue and EBITDA growth in 2018,” CEO Ajay Virmani said. “We are very pleased with our financial and operating results as we prudently manage our capacity to meet air cargo demand particularly related to e-commerce growth in Canada as well as our expanding ACMI and ad-hoc charter business. The continued year over year results are a direct reflection of the Cargojet team’s efforts and dedication in continuing to provide a first class service to our customers.”

Tucci notes that this was another record fourth quarter operating performance for CargoJet, and says it provides further evidence that his “bricks to clicks” thesis on the firm is holding true.

“Canada has a very unique geography, which creates a special opportunity for CJT,” the analyst says. “A natural monopoly exists given Canada’s large and sparse footprint and first-mover advantage has created a sustainable competitive advantage with the regulatory environment providing further support for CJT – foreign ownership and cabotage laws restrict foreign freight airlines from flying between airports within Canada – cabotage is the transport of goods or passengers between two points in the same country by an aircraft registered in another country. CJT and Canada Post entered into an agreement on April 1, 2015, that resulted in CJT becoming the exclusive provider of timesensitive airfreight services to Canada Post. On October 23, 2017, the original Master Services Agreement (MSA) was extended by three years to March 31, 2025 (with two additional 3-yr extensions remaining). Coupled with other long-term customer contracts, the majority of CJT’s revenues are de-risked. With e-commerce representing less than 10% of total Canadian retail sales (ex-motor vehicles and gasoline sales), we believe this secular shift remains in its very early innings. CJT remains one of the prime beneficiaries of this secular shift to e-commerce from brick and-mortar.”

In a research update to clients today, Tucci maintained his “Buy” rating on CargoJet, but raised his one-year price target on the stock from $100.00 to $105.00, implying a return of 25 per cent at the time of publication.

Tucci thinks CJT will post Adjusted EBITDA of $143-million on revenue of $485-million in fiscal 2019. He expects those numbers will improve to EBITDA of $162-million on a topline of $510-million the following year.