CJT stock upgraded at National Bank

The Chinese market is an area of growth for CargoJet (CargoJet Stock Quote, Chart, News, Analysts, Financials TSX:CJT), says National Bank Financial analyst Cameron Doerksen.

As reported by the Globe and Mail, the analyst June 14 upped his rating on CJT from “Sector Perform” to “Outpeform”, while raiaing his price target on the stock from $132.00 to $154.00.

“We understand that the new flights (a minimum of 3 per week) are largely supporting rapidly growing Chinese e-commerce giant Temu,” Doerksen wrote. “Cargojet is paid per flight, so it does not carry volume risk and we expect the estimate of $160 million in aggregate revenue to be conservative. While we do not have specific figures for Canada, Temu experienced explosive growth in the U.S. expanding to 28 million active users in April 2023 from launch of the service in September 2022 according to Sensor Tower.”

The analyst cautions that the eCommerce situation in China may ultimately be temporary, but says CJT is well aware of the risks and how to mitigate them.

“Investors may be somewhat anxious about Cargojet over-committing assets to support volumes that may not necessarily be sustainable long term,” Doerksen said. “Indeed, shipping low-priced consumer items using expensive air freight may not be the long-term solution for the Chinese e-commerce giants and if these companies wish to have a long-term presence in the Canadian market, they may ultimately invest in more warehousing and distribution centres and ship more goods by ocean freight. However, there will still likely be some more time-sensitive volumes that will continue to move by air in that scenario, noting that Amazon (another major CJT customer) has multiple distribution centres in most large Canadian cities but still moves large numbers of packages by air. The risk of future tariffs on Chinese imports is also a clear risk factor, but given Cargojet management’s historical conservatism, we do not see the company making significant new capital investments to support growth unless there is long-term certainty around cash flows from these customers.”