Beacon cuts target on Cargojet

The skies are looking a little cloudier in front of Cargojet (Cargojet Stock Quote, Charts, News, Analysts, Financials TSX:CJT), according to Beacon Securities analyst Ahmad Shaath, who reviewed the company’s latest quarterly results in a Monday update to clients. Shaath kept a “Buy” rating on the stock while lowering his 12-month target from $205 to $175 per share, representing at press time a projected return of 65 per cent.

Air cargo and leasing company Cargojet announced its first quarter 2023 financials on Monday, with revenue of $231.9 million compared to $233.6 million a year earlier and adjusted EBITDA of $75.0 million compared to $83.0 million for Q1 2022. Adjusted free cash flow was $42.5 million compared to $42.7 million a year ago.

Of the macro environment, President and CEO Ajay Virmani said consumer spending has shifted post-pandemic from goods to services, with an emphasis on travel and leisure, while there’s also been pent-up demand for consumers to frequent physical stores again.

Virmani said these patterns should normalize over the latter part of the current year.

“Our strategy to build a strong ACMI business, on top of our flagship domestic network, has allowed us the stability to ride these volatilities including the current softer economic conditions,” Virmani said in a press release.

CJT shares finished trading on Monday up almost four per cent, while the stock remains down about 30 per cent over the past 12 months.

Shaath said the Q1 numbers amounted to a slight miss overall, with the $232 million topline coming in marginally below his $235 million estimate and the consensus forecast of $243 million. Adjusted EBITDA at $75 million was in-line with Shaath’s call at $75 million but slightly below the Street at $79 million.

Shaath said management had commented at the end of the previous quarter, the fourth 2022, that the worst of the downturn in business was over, but the Q1 shows otherwise, changing the analyst’s view. 

“December is not a blip and domestic network growth is not expected this year, absent a strong holiday season. Block hour optimization efforts with DHL continue, which could put a lid on growth in that line. The company is starting two new routes on a temporary basis, which should provide mid-single digit lift (vs. Q1/FY23 run-rate) to ACMI revenues,” Shaath wrote.

Shaath revised his estimates downward and is now forecasting full 2023 and 2024 revenue of $973.0 million and $1,002.0 million, respectively, and EBITDA for 2023 and 2024 at $328.0 million and $359.0 million, respectively.

“Looking ahead, we expect Domestic Network growth to be muted this year as consumer spending trends continue to be a headwind. With this backdrop, the narrative around CJT story for FY23E is now all about cost cutting and network optimization, thus we expect multiple expansion potential to be contingent on the company’s success in those initiatives. Surprises to the upside would come if consumer spending picks up later this year,” he said.