EARNINGS UPDATE
Q3/24 PREVIEW; E-COMMERCE DEMAND & NEW CHARTER AGREEMENT TO DRIVE STRONG GROWTH
THE TD COWEN INSIGHT
CJT reports Q3/24 results after market close on November 4. We forecast adjusted EBITDA of $84.2 million (cons: $84.3 million) and adjusted EPS of $1.26 (cons: $1.21). We believe strong e-commerce demand, maritime congestion, and the new Great Vision agreement should drive 20% y/y EBITDA growth.
Impact: NEUTRAL
We are maintaining our BUY recommendation and $176.00 target. We have made minor adjustments to our forecasts to reflect adjustments to our capex and income tax forecasting, and other minor modelling updates, the net impact of which is immaterial to our EBITDA forecasts and target, but moves our EPS forecasts lower due entirely to tax assumption changes.
We forecast 14% revenue growth y/y to $245 million (consensus: $248 million). Forecast Domestic network revenue growth of 5.4% y/y based on strong e-commerce demand and contract pricing. The short-lived Canadian rail strike, and averted Air Canada (AC-T; BUY; current $18.28; target $19.00) pilot strike expected to have a relatively small (temporary) positive impact on Q3 Domestic Network results. We estimate 9.8% ACMI revenue growth based on DHL contracted aircraft and pricing. Charter revenue forecast to increase 29% based on bias higher in spot pricing and revenue from new Great Vision agreement.
We forecast adjusted EBITDA of $84.2 million, up 20% y/y, based on 170 bps of margin expansion due to fuel and aircraft utilization, partially offset by costs associated with pilot growth and the increased contribution from the slightly lower margin Great Vision services.
We view Cargojet's outlook positively. The new Great Vision agreement and China e- commerce strength should drive Charter revenue growth through H1/25 (forecast 16% Charter revenue growth in 2025). Resilient e-commerce demand, CPI-indexed pricing, and recent challenges in other modes of transportation (port strikes, maritime congestion, etc.) should drive revenue growth through at least 2025 (we forecast 3.4% and 1.0% Domestic Network and ACMI revenue growth, respectively, in 2025).
CJT continues to trade at a low valuation relative to comps (0.8x EV/EBITDA discount relative to comps vs. pre-pandemic 5-year average premium of 2.4x) and its own trailing five-year average (8.4x EV/EBITDA vs. trailing 5-year average of 10.3x) despite its resilient business model, competitive position within Canada, e-commerce growth potential, balance sheet and our forecast for 16% EBITDA growth from 2023-2026.