As can be seen, despite the minor increase in the target, his view is well below consensus. GLTA
While he sees the outlook for Cargojet Inc. (CJT-T) remaining “positive,” National Bank Financial analyst Cameron Doerksen thinks its relative valuation is “not overly compelling” and warns of potential headwinds to multiple expansion beginning to emerge.
He expects the Mississauga-based company to report “solid” fourth-quarter 2021 results on March 7, projecting core revenue growth to rise 11 per cent year-over-year. His earnings before interest, taxes, depreciation and amortization forecast of $87.5-million, up from $81.9-million a year ago, tops the Street’s estimate of $80-million.
However, Mr. Doerksen said the company’s valuation remains his “main pushback,” prompting him to reiterate his “sector perform” rating.
“On 2022 consensus estimates, Cargojet shares are trading at 11.4 times EV/ EBITDA, which is below the peak valuation of 13.0 times the stock traded at in 2020, but above the 9.2 times forward EV/EBITDA the stock has traded at on average since mid-2015,” he said. “CJT shares are also trading at or above the package & courier bellwethers UPS and FedEx, which trade at 11.5 times and 6.7 times EV/EBITDA on current-year estimates, respectively. Investors have not typically valued Cargojet on P/E, but we believe it is a relevant metric. On 2022 consensus forecasts, CJT is trading at 29.6 times P/E, which is a big premium to UPS at 17.0 times current year and higher than the P/E ratios for the Canadian rails, which are at 22-23 times P/E currently.
“CJT’s dominant market position, e-commerce tailwinds, and solid margins support a valuation premium to air cargo peers, but we see some emerging headwinds to multiple expansion. These include the potential for new competition in the domestic market in several years, more competitive capacity in the ACMI and international charter markets, peaking international cargo rates, and slowing e-commerce growth.”
After minor revisions to his financial forecast, Mr. Doerksen raised his target for Cargojet shares to $203 from $201. The average is $247.92.
“We expect a strong Q4 and also still see solid multiyear growth ahead for Cargojet as the company benefits from e-commerce growth and emerging new revenue opportunities with ACMI contracts and international charter demand,” he said. “However, in the context of what we see as emerging headwinds to multiple expansion, we see the current share price as close to fair value.”