Bullboard - Stock Discussion Forum Cargojet Inc T.CJT

Alternate Symbol(s): CGJTF | T.CJT.DB.F | T.CJT.DB.E

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Cargojet Inc. is a Canada-based provider of time sensitive air cargo services to all major cities across North America, providing dedicated, aircraft, crew, maintenance and insurance (ACMI) and international charter services. The Company's main air cargo business is comprised of operating a domestic network air cargo co-load network between sixteen major Canadian cities and providing dedicated... see more

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TSX:CJT - Post Discussion

Cargojet Inc > TD 2

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Post by retiredcf on Nov 06, 2024 8:11am

TD 2

Q3/24; GROWTH OUTLOOK REMAINS; COST PRESSURE TRANSITIONS TO LABOUR IN 2025

THE TD COWEN INSIGHT

Maintaining BUY and decreasing target to $167 from $176 on target method update and forecast revisions. While Q3 adj. EBITDA was only slightly shy of TD and cons., management acknowledged pending pilot wage pressure for 2025. This should not be entirely surprising, although the market was clearly concerned (stock down 7% yesterday) and we factor in 40 bps of compression in 2025 vs. 2024 to 33.6%.

Impact: SLIGHTLY NEGATIVE

Our lower target reflects forecast update (val-period adj EBITDA down 4.5%) and elimination of DCF (~$185/share) from target methodology, partially offset by shift forward in val-period to 4Q ending Q3/26 (from Q2/26). The volume and pricing outlook remained strong across business lines and management sounded optimistic on peak season and early 2025. Recent industry pilot wage inflation expected to necessitate catch-up contract with pilots for CJT in order to remain competitive in attracting and retaining pilots. This should limit margin expansion in 2025. TD forecast 33.6% adj EBITDA margin vs 34.0% in 2024.

2025/26 adj EPS estimates +5%/+14% vs prior forecast due to 1) lower D&A as certain assets reach end of depreciable lives and others have useful life extensions, and 2) reduced interest expense due to higher FCF/lower debt and lower effective interest rate.

We previously used a DCF in our target due to lack of relevant historical trading/valuation precedents to fully capture the appropriate equity value opportunity. As conditions have normalized, and we observe investors focusing on an EV/EBITDA based valuation, we now believe an EBITDA multiple alone is best approach. Our 10.0x multiple (increase from 9.0x) reflects the historical premium/discount of CJT to comp groups of 1) LTL's, 2) freight and courier companies, and 3) rails. It also reflects its own historical and current valuation multiples. We believe multiple expansion to 10.0x (current fwd 8.4x) over the next 12- months will result from earnings growth, deleveraging, buy-backs, anticipation of cost pressure normalization in 2026, and growing appreciation by the market for the value in the company's competitive position in Canada and relationships with Canadian/global air freight/e-commerce heavyweights (DHL, Amazon, UPS, Great Vision).

Q3/24 adj. EBITDA of $82.2 million, +17% y/y (TD/cons: $84.2/$83.8 million). CJT Q3 results were strong when considering economic environment and results of key trucking comps. CJT's 15%/17% rev/EBITDA growth compares to a comp group (SAIA, ODFL, TFI, AND, MTL) for which cons. forecasts/reports imply average Q3/24 rev/EBITDA growth of 5%/4%.