More Raised Targets Following “solid” second-quarter results and an outlook that calls for stronger growth and margins trends in the second half of 2024, ATB Capital Market analyst Chris Murray said he’d remain a buyer of Cargojet Inc. at its current level.
On Tuesday, the Mississauga-based company reported revenue of $230.8-million, below Mr. Murray’s expectation of $247.3-million. Adjusted EBITDA of $79.1-milion and an adjusted fully diluted earnings per share loss of 5 cents also fell below his projections ($86.6-million and a profit of $1.54, respectively).
However, he emphasized the results were 11.5-per-cent growth across its core air cargo services “with underlying margin trends remaining intact.”
“Revenue sourced from the domestic network/ACMI/Charter of $191.3-million (up 11.5 per cent year-over-year) was in-line with ATB estimate, reflecting normalizing volumes across the domestic network, strong demand for All-In Charter even with the new China scheduled charter business, and steady growth in ACMI, with better cost containment evident,” he added.
“Management was increasingly constructive on its outlook for H2/24, with improving macro conditions supportive of more normal seasonality, which we expect to drive greater operating leverage given steps taken to optimize the fleet and cost structure. CJT announced an 11.25-per-cent increase to its quarterly dividend and maintains the balance sheet capacity to remain active on its buyback in H2/24.”
Mr. Murray pointed to the expectation of “much stronger” growth in the second half of the year, which he noted makes “this the first year in three with a normal ‘peak’ season.”
“Revenue per block hour continued to improve in Q2/24 (up 5.0 per cent year-over-year), which we expect to support margin expansion in H2/24 given normalizing volume trends and better aircraft utilization,” said Mr. Murray.
Also seeing Cargojet “capitalizing” on the need for charter services with “a strong demand environment globally,” he raised his 2025 earnings expectations, leading him to push his target for its shares to $165 from $160 with an “outperform” rating. The average target on the Street is $159.45.
“We expect the Company’s revised fleet strategy to drive stronger asset utilization and higher ROIC (i.e., back to pre-pandemic, mid-teens levels) while positioning the Company to continue to benefit from ecommerce-led demand trends and attractive supply/demand dynamics around international air cargo services,” said Mr. Murray.
Elsewhere, Acumen Capital’s Nick Corcoran raised his target to $178 from $175 with a “buy” rating.
“With signs that the global freight market has hit an inflection point, CJT has shifted into a controlled growth mode,” he said.
“We continue to note that the stock is trading well below its five-year average despite significant growth and diversification over the period.”