Cargojet Inc.
(CJT-T) C$173.52
Supply & Demand Trends Providing Lift for Air Cargo Event
We are initiating coverage on Cargojet Inc. (CJT) with a BUY recommendation and $230.00 target price. A more detailed report will be published later today.
Cargojet provides time-sensitive air cargo services with a network of routes to major cities across North America, including an overnight service between 15 major cities across Canada. The company also provides aircraft charters and ACMI (aircraft, crew, maintenance, and insurance) services. The majority of Cargojet's growth has been organic, largely driven by strategic partnerships with key customers who are global heavyweights in courier services, logistics, and e-commerce. Cargojet was formed in 2002, went public in 2005 as an income fund, and converted into a corporation in 2011.
In our opinion, there are a number of key factors that support a premium valuation multiple for Cargojet over our investment horizon. Cargojet has a dominant share in the Canadian overnight cargo market. There is a severe shortage of belly capacity on commercial passenger aircraft due to the pandemic, which, combined with growth in e-commerce, has driven unprecedented demand for dedicated air cargo services. Cargojet has a history of significantly stronger revenue and EBITDA growth relative to a group of comparable companies. Commercial air transportation regulations, foreign ownership restrictions, and other factors provide good barriers to entry for the Canadian domestic air cargo market.
Cargojet's historical growth, recent margin profile, and balance sheet are stronger than comparables, while its FCF history has been weaker, albeit due investments in growth opportunities that we believe are now benefiting shareholders. We forecast that Cargojet will increase revenue at a 6.0% CAGR from 2020 through 2023.
TD Investment Conclusion
We believe that Cargojet deserves a premium valuation relative to a group of comparable companies, due to its above-average historical growth, prudent financial leverage, improving and strong forecast margins, and competitive position within an industry that is expected to continue benefiting from a lack of cargo capacity and growth in e-commerce. We believe that Cargojet's valuation multiples will continue to benefit over the next 12 months from growth in e-commerce and air cargo demand, and the lack of belly capacity on commercial passenger aircraft