Long-Term Lift Expected For This Air Shipping Stock

Accelerating eCommerce trend has powered the share price of Cargojet Inc. (TSX:CJT) 99% higher year to date

Capital Ideas Media | September 28, 2020 | SmallCapPower: eCommerce is a long-term trend that has accelerated due to COVID-19 related restrictions.

(Originally published on Capital Ideas Media on August 11, 2020)

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According to Statista, global retail eCommerce sales are anticipated to surge from US$3.5 trillion in 2019 to US$6.5 trillion by 2023.  

With more and more consumers shopping online, there are greater expectations of speed and reliability in regards to shipping products we want and need. This is expected to boost the business prospects of companies including the Canadian firm Cargojet Inc. (TSX:CJT).

Cargojet owns a fleet of 26 aircraft, which it uses to deliver time sensitive, overnight air cargo to 15 major cities across North America as well as a few international destinations.

The Company reported its second-quarter 2020 financial results last week, in which its revenue soared 65% to $196.1 million, while Adjusted EBITDA for the period more than doubled to $91.1 million.

Bolstering Cargojet’s Q2 results was a 120% year-over-year rise in Canadian eCommerce sales in May.

Fewer passenger flights as a result of COVID-19 also benefitted Cargojet, as these planes also carry cargo, a trend Cargojet CEO Ajay Virmani believes “will continue for the short and medium term.”

In a research note, ATB Capital Markets analyst Chris Murray wrote that CJT’s “remarkable quarter demonstrates long-run potential,” increasing his target price on the stock to $220 per share from $180.

“While we believe Q2/20 is unique, we believe structural changes taking place with respect to passenger air travel and eCommerce should be highly supportive for earnings over the coming quarters,” he said.

The analyst added that management also noted that with Canada continuing to re-open late in the quarter, it has noticed a rebound in B2B volumes, now 60% to 70% of pre-COVID levels, and that it believes strong demand for ACMI (Aircraft, Crew, Maintenance, Insurance) services in international markets will continue in the short and medium term.

Mr. Murray raised his 2020 and 2021 EBITDA projections for Cargojet to $255.4 million and $261 million, respectively, from $191.2 million and $219.7 million.

Raymond James analyst Ben Cherniavsky, though, believes shares of Cargojet are “wildly over-valued,” attributing the bulk of the Company’s better-than-expected Q2 EBITDA to charter revenues associated with short-term government contracts to ship pandemic-related PPE supplies to Canada. He did, however, up his target price for CJT to $190 per share from $120.

Finally, Canaccord Genuity analyst Doug Taylor wrote, “We don’t see anything here to knock the stock off its lofty valuation in the near-term.”

Following the Company’s second-quarter results, Cargojet CEO Ajay Virmani said he will use the increased cash flows to pay down debt and will continue to make investments for future growth.

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