CargoJet stock is a pass, says Laurentian Bank

It’s still a “Hold” on Canadian overnight cargo company CargoJet Inc (CargoJet Stock Quote, Charts, News, Analysts, Financials TSX:CJT), according to Laurentian Bank Securities analyst Jonathan Lamers, who provided a pre-quarter update on the company on Tuesday. Lamers said a potential freight recession up ahead is likely to weigh on the stock.

CargoJet, which releases its first quarter 2023 financials after market opening on Monday, May 1, is Canada’s leading provider of premium air cargo services across North America. The company has three business segments in dedicated freight, an aircraft, crew, maintenance and insurance (ACMI) business and a charter plane service. 

The company saw revenues climb 29 per cent last year to reach just under $1 billion at $979.9 million, while adjusted EBITDA rose 12 per cent to $329.0 million.

Lamers said he’s cautiously optimistic about the upcoming Q1, calling for revenue to hit $240.4 million, which would represent a 2.9 per cent year-over-year increase. Adjusted EBITDA is forecasted at $76.9 million for a 7.3 per cent year-over-year drop, while adjusted EPS is forecasted at $0.89 per share, down a full 49 per cent from a year earlier.

“We recently re-launched coverage of CargoJet and had the opportunity to speak to senior management. Domestic volume trends improved somewhat in January and had been tracking positively relative to the company’s expectations. The ACMI business is benefitting from new routes added. The company has begun reducing expenses, consistent with its plan to manage costs to the block hour and maintain Adjusted EBITDA margin,” Lamers wrote.

With his “Hold” rating, Lamers reiterated a target price of $123, basing it on a 9.0x EV/EBITDA for 2024’s numbers. The analyst said CargoJet has traded in a range of 8-12x with an average of 10x between February 2014 and February 2020. Lamers said his target multiple is set at below average given the “clear earnings risks from a potential freight recession.”

“CargoJet trades at a slight discount to the group average, which appears uncompelling on its own given the stock has slower expected earnings growth over the next two years, and operating margin and ROIC are essentially in line with the group,” Lamers said.

At the time of publication, Lamers’ $123 target represented a projected one-year return of 15 per cent.