Revised TargetsAside from BMO, all are well ahead of where we currently sit indicating that yesterday was yet another significant overreaction which we've come to expect in these volatile markets. GLTA
While he continues to see Cargojet Inc. “well-positioned for market weakness” and reiterated his bullish long-term view, National Bank Financial’s Cameron Doerksen does not see “an obvious catalyst” for valuation multiple expansion for its shares in the short-to-medium term, pointing to “macroeconomic uncertainty.” He was one of several equity analysts on the Street to reduce their forecast and price targets for the Mississauga-based company’s shares following the release of weaker-than-anticipated fourth-quarter results and financial guidance, which sent its shares plummeting 10.8 per cent on Monday.
“We remain positive on Cargojet’s longer-term growth prospects supported by aircraft additions under contract with DHL and secular growth in e-commerce volumes,” he said. “Valuation is also reasonable, with the stock currently trading at 7.9 times forward EV/EBITDA on our updated forecast, which is below the historical average for the stock at 8.9 times.”
Cargojet reported quarterly revenue of $267-million, up 13 per cent year-over-year and in line with Mr. Doerksen’s $268-million and the Street’s expectation of $260-million. However, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and earnings per share of $83-million and 90 cents, respectively, both fell short of estimates ($96-million and $2.27 and $91-million and $2.02).
It also gave a “cautious” view for 2023 and announced its planned international expansion has been deferred due to difficult macroecono.ic conditions.
“Management indicates that the slower than expected peak season in Q4/22 portends potentially softer volumes and block hours for 2023, which is consistent with our view of the air cargo market (although volumes so far in Q1 are relatively stable according to management),” said Mr. Doerksen. “Growth in ACMI is still expected this year as new contractually committed aircraft are added with DHL. Overall, management still sees modest revenue growth in 2023 with lower costs as the company will not incur the unusually high costs from overtime, pilot training and temporary workers that it had last year.”
“Despite the macro headwinds, CJT is well-insulated against a market pullback. The long-term contract with DHL will see growth this year and next and the company has maintained sufficient capex flexibility to defer new planes scheduled for delivery in 2023 and 2024. Management expects capex for 2023 to be $100-125 million lower than previously announced at its 2022 investor day, with total capex over the coming years to reduce by as much as $320- $400 million.”
Reducing his 2023 and 2024 revenue and EBITDA forecasts to “reflect softer volume expectations as well as modestly lower assumed margins,” Mr. Doerksen cut his target for Cargojet shares to $140 from $147, keeping a “sector perform” rating. The average is $178.73.
“Given the share price weakness today, we see limited further downside to the stock. Indeed, while we do not see a near-term positive catalyst for the stock, we view the current share price as a more compelling entry point for value-oriented longer-term investors,” he said.
Others making changes include:
* Canaccord Genuity’s Matthew Lee to $155 from $175 with a “buy” rating.
“Our main takeaway was management’s mid-single-digit revenue growth outlook and the willingness to taper capex while maintaining conversion slots to rebound quickly if needed,” he said. “Our pre-quarter F23 forecasts, which assumed only 5 per cent consolidated top-line growth, still appear attainable, but we have opted to further moderate expectations, primarily on the domestic side. In terms of capital spending, management has committed to a substantial reduction with F23 growth capex declining by $100-$125-million, and a similar decline expected in F24. We maintain our BUY rating on CJT given the company’s balance sheet flexibility, well-managed capital spending, and longer-term growth trajectory but note that near-term oscillations in consumer spending could create further difficulties for the name.”
* ATB Capital Markets’ Chris Murray to $150 from $158 with an “outperform” rating.
“We have lowered our target price to account for slower growth rates, but we continue to see valuations providing an attractive risk/reward setup for longer-term investors,” said Mr. Murray.
* Scotia’s Konark Gupta to $172 from $180 with a “sector outperform” rating.
“We are encouraged to see that CJT is able to grow against a challenging backdrop and generate positive FCF earlier than expected as capex profile looks more balanced now,” he said. “We are trimming our EBITDA outlook through 2026E while improving our FCF and leverage ratio forecasts over the medium term. As a result, our target decreases to $172 (was $180). However, we maintain our Sector Outperform rating given valuation appears quite attractive at 7.8/7.1 times EV/EBITDA on our 2023/2024 estimates, below the pre-pandemic range of 8-14 times (average 10 times). We would view continued growth, positive FCF and leverage peak as key drivers over the next 12 months.”
* RBC’s Walter Spracklin to $231 from $247 with an “outperform” rating.
* BMO’s Fadi Chamoun to $130 from $140 with a “market perform” rating.
* TD Securities’ Tim James to $185 from $195 with a “buy” rating.
* CIBC’s Kevin Chiang to $193 from $196 with an “outperformer” rating.