Canaccord Genuity analyst Matthew Lee said Cargojet Inc.’s inaugural Investor Day event bolstered his “confidence in the company’s trajectory over both the near and longer term.”
“For F22, management remains confident in its H2 revenue forecast, fueled by holiday shopping from Thanksgiving to Boxing Day,” he said. “We note that the company had previously indicated that 55 per cent of its revenue would occur in the second half, which appears to still be the case. We also came away from the presentation remaining constructive on Cargojet’s long-term prospects, with management adamant that its 98-per-cent on-time rate and long-standing relationships with customers will allow it to continue its dominance in the domestic market while adding to its ACMI [Aircraft, Crew, Maintenance and Insurance] network.”
At the event in Hamilton on Tuesday, the company issued guidance for fiscal 2026 that fell in line with Mr. Lee’s projections. He noted revenue targets “suggest strength in ACMI, CPI-level growth in Domestic.”
“Total revenue is expected to be between $1.3-$1.4-billion, which represents a 10-per-cent CAGR [compound annual growth rate] from our F24 estimates,” he said. “Based on our calculations, we expect that $150-million of the revenue increase relates to ACMI, with the Domestic Network growing by 2-3 per cent annually. We believe this may be somewhat conservative given contractual rate increases, implying minimal volume growth across its network. F26 EBITDA margin expansion reflects cost discipline, shift toward ACMI. Adjusted EBITDA guidance of $500-million to $550-millionrepresents a 38.5-per-cent margin, 4 percentage points above our 2022 estimate and 1.5 percentage points above our 2024 estimate.
“We expect the key drivers of the firm’s improved profitability to be: (a) a substantial increase in ACMI revenues, which garners 60-70-per-cent margin, (b) cost reductions from flying larger, more fuel-efficient aircraft, and (c) reducing opex intensity with growing scale.”
While expecting renewals of both its UPS and Canada Post contracts by the first half od 2023 and emphasizing its “on-time performance provides a differentiator in the ACMI space,” Mr. Lee cut his target for Cargojet shares to $195 from $210 “given the macroeconomic backdrop in tandem with the substantial challenges faced by several of the firm’s key peers.” The average on the Street is $205.64.
“Our valuation remains below historical trading averages and, in our view, adequately accounts for the current economic uncertainty,” he noted.
Mr. Lee maintained a “buy” recommendation.
Other analysts making changes include:
* RBC Dominion Securities’ Walter Spracklin to $286 from $287 with an “outperform” rating.
“CJT’s investor day provided a compelling overview of the company’s unique business model, along with impressive financial guidance provided out to 2026,” said Mr. Spracklin. “The FCF guide is particularly notable in that it represents a meaningful 2026 estimated FCF yield of 15 per cent. Simply put, there is a significant disconnect between the defining investment characteristics of this company and the FCF yield at which its shares are trading — making this a compelling investment opportunity. We continue to rank CJT as our #1 investment idea across our coverage universe today.”
* CIBC World Markets’ Kevin Chiang to $203 from $210 with an “outperformer” rating.