CargoJet’s stock gets new $120.00 price target at Echelon Wealth

Following news of a financing, Echelon Wealth Partners analyst Gianluca Tucci has raised his price target on CargoJet (CargoJet Stock Quote, Chart TSX:CJT).

On Tuesday, CargoJet announced it had closed a previously announced $100-million bought deal of senior unsecured hybrid debentures. The company said it intends to use the cash injection to pay down its credit facility and make new aircraft purchases.

Tucci says Amazon is playing a big part in CargoJet’s current success.

Amazon announced in February it is expanding its operations in Canada by rolling out Prime one-day delivery to 13 new locations across Canada,” the analyst explains. “Free one-day delivery is available to Amazon Canada Prime Members who spend over $25 and order before by 11:00pm ET and by 9:45pm ET in Quebec City time cut-off. This brings the total number of locations for one-day delivery in Canada to 19. We believe Amazon today represents ~10% of direct CJT revenue and ~20% of direct and indirect CJT revenue when considering flow through volumes via Purolator. The one-day delivery rollout to the 13 additional cities (Ancaster, ON; Brantford, ON; Cambridge, ON; Dundas, ON; Grimsby, ON; Hamilton, ON; Kitchener, ON; London, ON; Paris, ON; Waterloo, ON; Woodstock, ON; Quebec City, QC; Victoria, BC) should supplement further growth in CJT’s overnight business which did $249M in 2018 rev, up 12% y/y. We believe the increased volumes as a result of the added Amazon one-day delivery service could drive Amazon’s share of direct CJT revenue up to ~15% by early-to-mid 2020. We expect Amazon growth (direct and indirect) within Cargojet to accelerate as the year advances and fulfilment centres come online.”

In a research update to clients today, Tucci maintained his “Buy” rating but raised his one-year price target on the stock from $105.00 to $120.00, implying a return of 56 per cent at the time of publication.

Tucci thinks CargoJet will post Adjusted EBITDA of $143-million on revenue of $485-million in fiscal 2019. He expects those numbers will improve to EBITDA of $164-million on a topline of $524-million the following year.

“Canada has a very unique geography, which creates a special opportunity for CJT,” the analyst adds. “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).”