Cargojet has lots of upside, says Beacon

Beacon Securities analyst Ahmad Shaath lowered his target price on Cargojet Inc (Cargojet Stock Quote, Charts, News, Analysts, Financials TSX:CJT) on Wednesday, while at the same time staying bullish on the stock and company, saying CJT’s ACMI (Aircraft, Crew, Maintenance and Insurance) business will help power it through a more challenging macro environment.

North American air cargo services provider Cargojet was flying high in the early days of the pandemic as e-commerce sales took off and businesses upped their shipping games, but the stock has been dropping more of less since late 2020, going from a high of about $220 per share to now in the $120 and $130 range.

Shaath said global air cargo demand has been on the decline, dropping 15.3 per cent year-over-year in the month of December, which represented the biggest drop in 2022, according to the latest data from the International Air Transport Association (IATA).

“On a regional basis, December also showed continuation of declines in all major region-pair markets except for the North America-Europe market,” Shaath wrote. “This market registered the first positive m/m growth since April. The air cargo demand between Asia-North America, remains the only other route that is above its Jan/2020 levels.”

The result is a dimmer view from Shaath on Cargojet’s domestic cargo business as well as its all-in charter aircraft business. On the other hand, the analyst sees continuing strength from ACMI, calling for 2023’s ACMI segment revenue to be $296 million compared to $249 million expected from 2022.

Ahead of fourth quarter earnings expected in the coming weeks, Shaath has updated his Q4 forecast and is calling for $263 million in total revenue (previously $271 million) and adjusted EBITDA at $92 million (previously $102 million).

“We tweaked our forecast to reflect lower growth in CJT’s domestic network and further slowdown in ad-hoc revenues, while maintaining our forecasts for ACMI unchanged. ACMI remains the top contender to show strength, and on that front, we remain as optimistic as ever given CJT’s exceptional track record in delivering on that front,” Shaath wrote.

“Thus, we elect to keep our valuation multiple unchanged at 12.0x, which we believe reflects the upside potential from ACMI,” he said.

With the update, Shaath maintained “Buy” rating on CJT while lowering his target price from $220 to $205 per share, reflecting at press time a projected one-year return of 60 per cent.