CargoJet is a winning stock, this portfolio manager says

CargoJet (CargoJet Stock Quote, Chart, News TSX:CJT) is flying high these days thanks to a new partnership with Amazon and strong momentum in overnight shipping. But the company is also solid on the management side, says James Telfser of Aventine Asset Management partner, who says that CargoJet has a lot of runway left.

“We would buy CargoJet,” said Telfser, managing partner at Aventine, in conversation with BNN Bloomberg on Monday. “We met with the management team a couple of weeks ago and it’s one of those management teams that comes out and tells you exactly what they’re doing and then they go out and execute on that plan.”

“One of the big breakthroughs for us on CargoJet was how they have been able to increase the utilization rates on their existing fleet. When you’re a company that operates with very expensive aircraft you don’t want them going out there and buying or leasing more planes, it’s expensive and cuts into the free cash flow,” says Telfser.

“CargoJet has done an excellent job at taking their existing fleet and managing it by getting new contracts, flying new routes and getting new customers. They’ve done an excellent job and this company should continue to do really good things,” he says.

CargoJet has been a consistent climber for a number of years, rising from $25 per share in early 2016 to the $100 range that it’s been occupying for the last three months. The stock hit an all-time high of $109 back in August, directly after management announced a deal with Amazon that will see CargoJet become the Canadian carrier for the e-commerce giant.

By the terms of the partnership, Amazon receives warrants to buy up to 14.9 per cent of CargoJet dependent upon Amazon supplying CJT with up to $600-million in business in upcoming years. The deal effectively erases any concerns that Amazon might be building out its own logistics network in Canada and it gives CargoJet a solid, long-term partner in the process.

“The commercial relationship the Cargojet team continues to build with Amazon has now allowed us to further strengthen and align our long-term strategic commercial interests,” Cargojet CEO Ajay Virmani said in a statement.

Telfser says that the Amazon deal took some weight off CJT’s stock price.

“It’s a great partnership for them and really cuts out one of the overhangs on the stock on the competitive side, the fears that Amazon would come in and try to replicate that,” Telfser said.

CargoJet reported earnings early in November for its third quarter 2019, showing revenues up 2.9 per cent year-over-year to $117.4 million and adjusted EBITDA up 24 per cent to $39.1 million. Growth came from increases to domestic network revenue from e-commerce activity and through its aircraft leasing and operating services.

“Our domestic network continues to benefit from overall e-Commerce growth in Canada with revenues up 5.5 per cent versus the previous year,” said Virmani “As we enter the peak shipping season, our team will be focused on continuing to meet our customers’ capacity requirements while delivering the best customer experience for this holiday season.”