Q3/24 CANADIAN CARGO TRANSPORTATION (ROAD & AIR) PREVIEW
THE TD COWEN INSIGHT
Mullen Group (MTL; BUY, current $14.23, target $21.00) is our preferred stock in the group due to its historically low valuation, demonstrated prudence with capital, 5.9% dividend yield, and other factors. While costs are expected to prevent CJT from even stronger Q3 earnings growth, we believe the outlook for Q4 and early 2025 is incrementally positive. AND's historically low valuation, healthcare related earnings resiliency and increasing excess capital is expected to provide attractive upside over 12-months. We have updated our underlying economic, currency and fuel price assumptions, along with certain company specific factors, the net impact of which is immaterial to our targets and recommendations.
Cargojet: We forecast 17% revenue growth y/y to $250 million (consensus: $246 million). Forecast Domestic network revenue growth of 6.8% y/y is based on strong e-commerce demand and contract pricing. We estimate 5.7% ACMI revenue growth based on DHL contracted aircraft and pricing. Charter revenue is forecast to increase 29% based on a bias higher in spot pricing and revenue from the new Great Vision agreement. We forecast adjusted EBITDA of $85.5 million (consensus: $84.8 million), up 22.1% y/y, based on 150 bps of margin expansion due to fuel and aircraft utilization, partially offset by costs associated with pilot growth and the ramp up of the Great Vision agreement.
Mullen Group: We forecast 3.0% y/y revenue growth to $519 million (consensus: $521 million). We forecast EBITDA of $90.4 million (consensus: $88.8 million), up 2.1%, and 20 bps of margin compression vs. 40 bps of margin expansion in Q2/24. We forecast relatively flat LTL EBITDA and 50 bps of margin expansion based on volume growth and cost control, partially offset by pricing headwinds. S&I EBITDA is forecast to decline 7.8% y/ y (-100 bps) primarily due to pricing and volume headwinds. Our forecast for 16.3% L&W EBITDA growth is driven by the ContainerWorld acquisition (Q2/24). The ContainerWorld acquisition (drag on margins in short-to-medium term) and pricing declines are expected to drive 60 bps of L&W margin compression.