Our view: As expected, eCommerce volumes were robust in the quarter and indications from the call were that this strength will continue to benefit the Domestic Overnight business in the long run. We also continue to see meaningful opportunity in international airfreight reflecting surging eCommerce demand as well as tight air cargo capacity. We expect CJT to benefit from this dynamic as it accepts delivery of its expanded fleet in 2023 and 2024. Reiterate CJT as a top three idea in transportation.
Key points:
Q1 results above. Adj EBITDA of $64MM was up +44% Y/Y and above our $59MM and consensus of $58MM. Revenue came in above on higher volumes (+35% y/y vs. our +20% y/y) but yields came down, reflecting the higher volume from the company's larger customers. Overall, a solid quarter.
International airfreight rates expected to remain elevated. We continue to view both the near- and long-term air cargo market dynamic as a positive for CJT. In the near term, we point to tight transportation capacity, which is pushing freight volumes up and causing a surge in air cargo pricing. We expect this dynamic to benefit CJT in 2021. Looking longer term, we expect supply to slowly normalize but highlight that demand will continue to grow over and above 2019 levels, reflecting robust eCommerce growth.
Domestic Overnight business benefiting from eCommerce tailwinds.
Our view is that recent demand strength continues, and we point to commentary from UPS, which expects online sales to be up +13% in 2021 following growth of +25% in 2020 (we note that this aligns with our own modeling). Overall, we are positive on the Domestic Network outlook in the near, medium and long term, and expect eCommerce tailwinds to drive a double-digit EBITDA CAGR out to 2025.
2021 higher on better margins but some moderation to out-year estimates. We are modeling for higher margins in 2021 on the back of the Q1 results. Our 2021 EBITDA margin estimate increases to 38.4% (from 37.2%) and our 2021 EBITDA estimate goes to $259MM, from $250MM. Our 2022 estimates are unchanged; however, we are making a modest downward adjustment to our out-year estimates on lower yields. As a result, our price target goes to $293 (from $318).
Meaningful long-term opportunity in shares at today's prices. We continue to see a meaningful opportunity in the shares at current levels. We believe eCommerce tailwinds will drive compound earnings growth in the Domestic Overnight business and that a favourable supply/demand environment will drive attractive air cargo pricing in the international market as CJT accepts delivery of its expanded fleet. We do not believe these favourable growth drivers are being reflected in the shares and reiterate CJT as a top 3 idea in our coverage universe.