Following the company’s second quarter results, Beacon Securities analyst Ahmad Shaath remains bullish on Cargojet (Cargojet Stock Quote, Chart, News, Analysts, Financials TSX:CJT), if only a little less so.
On August 14, CJT reported its Q2, 2023 results. The company posted Adjusted EBITDA of $74.3-million on revenue of $209.7-million, down from the $246.6-million topline it posted in the same period last year.
“To prepare Cargojet to ride the current economic cycle, we shifted our focus to cost management as well as rightsizing our network, while curtailing growth capex [capital expenditures] and focusing on generating free cash flow, CEO Dr. Ajay Virmani said. “Our EBITDA margin of 35.4 per cent in this quarter versus 32.9 per cent prior year clearly demonstrates that our cost management initiatives are yielding the desired results.While we expect economic conditions to remain difficult, the shift in consumer spending towards travel and leisure versus goods is expected to normalize towards the end of this year. The Cargojet team continues to be industry leaders providing a 99.6-per-cent on-time performance in the quarter. Our focus remains on delivering exceptional reliability and customer service.”
Shaath characterized the quarter and Cargojet’s current challenges.
“Q2/FY23 total revenue of $210 MM was below our forecast of $232 MM and consensus $223 MM,” he noted. “More importantly, operating revenue (Ex. Pass throughs) was $172 MM, just ahead of our $170 MM. The beat was driven by stronger All-in charter revenues ($27 MM vs. our $18 MM forecast), which helped soften the blow from continued weakness in the Domestic Network revenues ($81 MM vs. $86 MM forecast, down 8.2% y/y vs. our forecast of -0.08%). ACMI revenue of $64 MM was slightly below our forecast of $66 MM (Figure 1). This was driven by reduced block hours following DHL’s reshuffling of some of its routes (to Americas vs. across the Pacific to Asia previously), which offset the benefits we expected to see from the two temporary routes started with DHL.”
In a research update to clients August 14, the analyst maintained his “Buy” rating on CJT but lowered his one-year price target from $175 to $142, implying a return of 42 per cent at the time of publication.
While revising his expectations down slightly, Shaath thinks CJT will post EBITDA of $308-million on revenue of $899-million in fiscal 2023. He expects those numbers will improve to EBITDA of $330-million on a topline of $948-million the following year.
The analyst said there is upside for investors willing to weather through the current storm with Cargojet.
“We revised our FY23E and FY24E forecast to reflect further slowdown in Domestic Network and ACMI, offset by better All-in charter revenues,” he added. “Our new target price of $142.00 (vs. $175.00 prior) is based on 8.5x (unchanged) multiple to our FY24E EBITDA forecast. We continue to believe most of downcycle risk is reflected in the current valuation of CJT shares and view our target multiple somewhat conservative given management’s strong track record.”