Cargojet Inc. (TSE:CJT), Canada’s leading provider of overnight air cargo, is set to report its second quarter earnings on August 3, 2021, before markets open. The management team will host a conference call to discuss second quarter results, following the release at 8:30 am ET.
Cargojet is Canada’s leading provider of time sensitive premium air cargo services to all major cities across North America. Providing aircraft, crew, maintenance and insurance, (ACMI) and international charter services, Cargojet carries over 25,000,000 pounds of cargo weekly.
Since the beginning of the global pandemic, the company experienced a surge in ecommerce and health care-related volumes. Reflected by the likes of Amazon (AMZN) and Shopify (SHOP), online retailers saw unprecedented growth in their online sales as brick-and-mortar retail faced COVID restrictions for in-store traffic. Cargojet, being part of the infrastructure behind time sensitive freight, has benefitted on the back of this trend.
The stock, however, did take a hit at the beginning of lockdowns, dropping from its pre-pandemic high of C$123 per share, bottoming to a low of C$67 per share. As ecommerce volumes began rising during the pandemic, the stock rocketed to a new all time high of C$250 in November of 2020. Currently, CJT is off its all-time highs since COVID restrictions began loosening, but remain in record territory.
As the economy has begun to loosen restrictions and commence reopening, expectations are that ecommerce volumes will slow, with retail resuming in-store shopping. The question is whether Cargojet can continue to position the company to capture the long-term tailwinds from secular ecommerce growth, and offset any short-term volume declines through route expansions, as it begins to enter the U.S. market. (See Cargojet stock charts on TipRanks)
Let’s take a closer look at what analysts are expecting for the company’s Q2 print.
Earnings Preview
Analysts are expecting Cargojet to report a profit of $0.97 per share on revenues of approximately $163.4 million. The company didn’t provide specific guidance for the quarter.
Prior Period Results
In the previous quarter, the company reported adjusted earnings of $0.74 per share, compared to adjusted earnings loss of -$0.12 in the prior-year quarter. The results missed the consensus estimate of $0.93. In addition, net revenue increased by 30% year-over-year to $160.3 million and beat analysts’ expectations of $153.8 million.
Factors to Look For
Continued momentum for ecommerce sales into the peak holiday season as well as into 2022 is an important consideration for air freight volumes and ultimately, for Cargojet. The International Air Transport Association (IATA) released its data for global air freight markets in June, highlighting that seasonally adjusted demand trends indicate the strong rate of growth compared to 2019 is due to gains that happened in H2 2020 and earlier in 2021. Moreover, demand remained well above pre-COVID levels and was up +10% versus June 2019. Volumes, as measured by cargo tonne-kilometers, were up +25% compared to June 2020.
The IATA release highlighted, “Supply chain conditions remain favourable, with low inventories-to-sales ratio, resilient demand for goods and more affordable air cargo compared to container shipping, all combining to make air cargo a competitive mode of transport,” suggesting that demand may climb again in the coming months. This is favorable for Cargojet, as it is seeing global demand remain above pre-pandemic levels, and conditions are supportive of further volume growth into the peak holiday season.
Investors will be watching freight volumes closely in the coming quarters to see if they can sustain robust levels, given the stock’s elevated price.
Recent Developments
On April 1, 2021, Cargojet expanded its existing commercial relationship with Amazon. The company announced that it has entered into a new air transportation services agreement with Amazon Canada Fulfillment Services. The agreement represents a four-year term with three successive two-year renewal options. Under the agreement, Cargojet will operate two Amazon owned Boeing 767 aircraft as part of Amazon’s Air Network on a CMI basis within Canada, to commence mid-2021. This is expected to generate additional revenue growth to Cargojet over time.
Cargojet has also been active in capital markets recently, raising $365 million through an equity raise wherein proceeds were used to pay off debt and acquire additional aircraft. The company purchased five Boeing 767 freighters and two Boeing 777 freighters, with option to add two more 777s.
Cargojet is rapidly moving forward to execute on its growth strategy to capture additional ecommerce volumes and international air-freight opportunities through an expanded fleet.
“With a fundamental shift in consumer shopping habits in several key categories, Cargojet has spent the last few quarters laying the foundation to capture the next phase of e-Commerce growth. We strengthened our balance sheet, invested in fleet expansion, broadened our portfolio of services and are investing in attracting and retaining top talent.” said Dr. Ajay Virmani, President & CEO.
The company also raised its dividend by 11% earlier this year.
Analyst Recommendations
On July 28, 2021 five-star ranked RBC Capital Markets Analyst Walter Spracklin highlighted Cargojet as a top idea, saying, “We remind investors that CJT is a top idea in transportation and that it has been selected once again to RBC’s Canadian Small Cap Conviction List.”
He also reiterated that the company’s expectation for mid-teens EBITDA CAGR through 2022-2024 is not reflected in the stock’s valuation, implying upside to current prices. He maintains a target price of $293 per share.
Bottom Line
As the global economy reopens, ecommerce growth could see a short-term slowdown due to consumers shopping in-store as lockdowns and restrictions ease. However, this phenomenon could be short-lived, due to structural changes in consumer shopping habits, as well as merchants accelerating their omnichannel approach. COVID has most certainly accelerated a move to increased online shopping, which is expected to continue into the long term. This provides a long tailwind of growth for the cargo industry, and Cargojet is well positioned to benefit.
On TipRanks, CJT has a consensus rating of Strong Buy, based on 9 unanimous Buy ratings. The average Cargojet price target is $246.01, suggesting a possible 12-month upside of 26.68%. CJT closed trading on Friday at a price of $194.20 per share.
Disclosure: Sean Tascatan did not own shares of Cargojet at the time of publication.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
