Our view: CJT reported an inline Q1, which considering the weaker results among North American parcel couriers, we consider as a positive read. Going forward, we believe mgmt positioned its outlook in the right way: current trends are a reflection of the pent-up shift in consumer purchasing services (from goods) and return to physical stores. Longer term, the expectation is that this will reverse and eCommerce growth will resume. We agree with this view and forecast CJT will resume its high-growth trajectory following a 2023 pause. Shares are fundamentally mispriced in our view. Reiterate CJT as a top idea.
Key points:
Q1 inline. CJT reported revenue at $232MM compared to consensus $237MM (RBC: $235MM). Adj. EBITDA came in at $75MM, in-line with consensus $76MM (RBC: $77MM), and margins were 32.3% (RBC: 32.5%). Overall, given the significantly lower than expected results at customers (i.e. UPS), we view the in-line earnings positively, all things considered. Highlights from the release, conference call and our subsequent call back with mgmt. as follows:
Putting financial performance in perspective. While CJT's share price has influenced the overall perception of the company and its performance; we highlight that this financial performance since 2019 has been very impressive. In terms of revenue and EBITDA, COVID drove 2020 results up 37% and 80% (resp), but that growth did not taper off and in fact continued, with 13% and 4% in 2021, and 30% and 12% in 2022. Said differently, LTM revenue as of Q1/23 is tracking 110% of same period in 2019 and LTM EBITDA is tracking 142%. And while it is fair to say that revenue will be impacted by a recession (how could it not be?) the key is that we forecast revenue growth to re-accelerate meaningfully once the macro improves and structural trends get back on track.
Updating ACMI, overnight (and capex) to reflect weaker demand. Macro conditions have deteriorated since CJT reported Q4 results in March, in line with management commentary on the call as well as freight data we track, including rail carloadings, which have seen growth rates worsen sequentially since January. Looking to the remainder of 2023, we expect consumer spending headwinds to persist but key longer-term is that we believe structural tailwinds related to eCommerce growth remain intact and will resume when macro conditions normalize - in our view representing a significant investment opportunity in CJT at today's levels.
Adjusting estimates. We are adjusting lower our 2023 EBITDA estimate to $324MM (from $335MM) due to weaker than expected macro. We expect conditions to normalize thereafter, but our 2026 estimate decreases slightly to $503MM (from $507MM) due to lower margin. Our target moves lower to $203 (from $231) due to an increase to diluted shares o/s.