Our view: CJT delivered on what was yet another quarter of strong growth and better-than-expected profitability. While there remains investor concern regarding the company's $1B in aircraft purchases, we highlight that the starting leverage (pre-spend) is only 1x, and that much of the capex will be funded by FCF ($1B in FCF expected over the next four years out to 2025) and by 2026 the company is set to be debt free. We reiterate CJT as our top name in transportation and maintain our OP rating.
Key points:
Solid Q1 beat. CJT delivered on a quarter that had a revenue level of $234MM in what is seasonally its worst quarter (Q1), which almost matched the revenue level of its best ($236MM in Q4/21). Cost control was strong (despite pilot shortage, higher fuel costs, etc.), which led to adj EBITDA of $83MM, well above consensus $74MM (RBC: $77MM). Margins (despite the mathematical drag of pass-throughs) were solid at 35.5% (RBC: 35.9%). We also had the opportunity to catch up with mgmt. post call. Highlights as follows:
Non-recurring benefits seem to be—well—increasingly recurring. Charter had yet another strong quarter, as "one-time" events like the BC flooding that led to a spike in demand in Q4, were replaced by another spike in demand (this time for test kits) in Q1/22. As a result Charter revenue of $41MM was well ahead of our $25MM and up 300% y/y. While we do not anticipate this level of activity longer-term, mgmt indicated that demand remains very robust for the foreseeable future—and as a result we are taking up our Charter estimates substantially in 2022 (see estimates below). And the key here is that although this revenue is non-recurring, there seems to be an urgent need to ship things at any given time somewhere in the world. So while this revenue stream can be lumpy, we believe it cannot be entirely discounted going forward.
... and all other lines were better than expected too. While Charter was the stand-out (at +300%), all other lines came in better than expected as well, with Domestic +10% (vs. our +7.8%) and ACMI +36% (vs our +34%). A key factor in Domestic is that many of the company's customers are having significant issues with driver availability and, as a result, are pushing more into air freight in their domestic operations—a trend mgmt. expects will persist for sometime.
Raising estimates. We are taking up our 2022 estimates to reflect the strong demand in 2022 for Charter, though we are conservatively holding our out-year estimates unchanged. See Exhibit 4 for detail.
A meaningful buying opportunity. With a clean B/S (1x net debt / EBITDA), a cash flow profile that is expected to cover its ambitious growth plan, and an attractive valuation—CJT is and remains, our single best idea in our transportation coverage universe today.