Ahmad Shaath of Beacon Securities has slightly grounded his expectations on Cargojet (Cargojet Stock Quote, Charts, News, Analysts, Financials TSX:CJT). Though he maintained a “Buy” rating in his latest analysis on Tuesday, he did drop his target price from $265/share to $250/share for a projected return of 63 per cent at the time of publication.
Mississauga-based Cargojet is a scheduled cargo airline with services in Canada and internationally, providing time-sensitive overnight service and operating domestic air cargo network services between fourteen cities in North America. The company has three main business lines in domestic overnight cargo, an aircraft, crew, maintenance and insurance (ACMI) leasing business and a charter plane business.
Shaath’s updated analysis comes after the company reported fourth quarter financial results that were ahead of expectations, though the target drop came as the result of multiple contraction.
Cargojet’s financial reports for the quarter were headlined by $236 million in revenue, a beat on the $216 million projected by the consensus, as well as beating the $209 million estimate set out by Beacon Securities. A majority of the reason for the beat was the company’s core revenues (ex. lease, FBO, fuel and other pass-throughs) came in at $180 million, well ahead of the $158 million estimate Beacon Securities had set out.
Meanwhile, the holiday season proved prosperous for the company’s domestic network revenue, which experienced 18.2 per cent year-over-year growth in the quarter to significantly outpace the 10.1 per cent projection set out by Beacon Securities. Also exceeding expectations were the company’s all-in charter revenues, which came in at $20 million to beat the Beacon Securities estimate of $13 million, with the benefits coming from scheduled charter flights to Europe and additional ad-hoc flights to Asia.
The company’s ACMI revenues also came in ahead of expectations, after Cargojet added two new domestic routes to Western Canada in October, as well as increasing its ad-hoc ACMI flying.
“We remain positive on CJT’s strategy to replace the B767s with B757s on its domestic network to free up B767s for ACMI routes,” Shaath said. “We note that it is already paying dividends, with CJT adding two new ACMI routes during the quarter.”
Cargojet’s adjusted EBITDA of $91 million also provided a beat compared to the Beacon Securities estimate of $80 million and the consensus estimate of $83 million. Meanwhile, the company’s adjusted EBITDA margin was relatively in line at 38.4 per cent, compared to a 38.2 per cent margin forecast from Beacon Securities and a 38.1 per cent prediction from the consensus.
However, apparently investors weren’t thrilled to hear about the company’s plan to purchase six additional B777s and two additional B757s to increase its total fleet to 50, which would require growth capital expenditures of $1.1 billion over the next four years. That’s according to Shaath, who noted the stock dropped by 17 per cent following the announcement.
“As we begin to prepare for the post-pandemic world, Cargojet now has a substantially larger base of business to build upon compared to its pre-pandemic size and scale. Building on the strong foundation of our domestic overnight network, we are aggressively diversifying to take advantage of the emerging growth opportunities,” said Dr. Ajay Virmani, President and CEO of Cargojet in the company’s March 7 press release.
With the company’s 2021 year-end figures now in place, Shaath slightly raised his financial projections for Cargojet in the 2022 fiscal year. After the company reported $758 million in revenue to end the 2021 fiscal year, Shaath increased his 2022 expectation from $805 million to $876 million to forecast year-over-year growth of 15.6 per cent. However, Shaath left his projection of $883 million in place for 2023, resulting in a minimal year-over-year increase of 0.7 per cent.
From a valuation perspective, Shaath forecasts the company’s EV/Sales multiple to drop from 3.9x in 2021 to 3.4x in 2022, then to a projected 3.3x in 2023.
Meanwhile, after finishing 2021 with an implied 38.7 per cent adjusted EBITDA margin ($293 million), Shaath forecasts Cargojet’s adjusted EBITDA to be $338 million in 2022 (previously $306 million), with the implied margin staying relatively flat at 38.6 per cent. Looking ahead to 2023, Shaath forecasts adjusted EBITDA of $349 million, implying a margin of 39.5 per cent.
In terms of valuation, Shaath forecasts the company’s EV/adjusted EBITDA multiple to drop from 10.1x in 2021 to 8.7x in 2022, then to 8.4x in 2023.
Shaath also expects investors to get a greater return in 2022 after raising his adjusted EPS from $6.66/share to $7.76/share, with the P/E multiple forecast to drop from 24.8x in 2021 to 19.8x in 2022, then to 19x in 2023.
Cargojet’s share price has taken a nosedive by 24.8 per cent over the last 12 months, with a further loss of 6.1 per cent since the start of 2022. On August 30, Cargojet was soaring at a 52-week high of $211.66/share, though it recently plummeted to a 52-week low of $149.32/share on Tuesday.