Valued at a market cap of $1.95 billion, Cargojet (TSX:CJT) has returned close to 640% to shareholders in the past decade, easily beating the broader markets. Despite its enviable gains, the TSX stock trades 40% below all-time highs, allowing you to buy the dip.
Let’s see if this stock should be a part of your equity portfolio at the current valuation.
An overview of Cargojet stock
Cargojet provides time-sensitive cargo services primarily in the U.S. and Canada. With 41 aircraft and more than 71 daily routes, the company has an on-time arrival reliability of 98.5%. It carries 25 million pounds of cargo every week while providing international charter and ACMI (aircraft, crew, maintenance, and insurance) services to clients.
Similar to other cargo companies, Cargojet thrived amid the pandemic due to the boom in e-commerce, allowing it to increase sales from $688.5 million in 2020 to $979.9 million in 2022. However, a challenging macro environment in 2023 meant it ended the year with sales of $877.5 million.
How did Cargojet perform in Q4 of 2023?
In the fourth quarter (Q4) of 2023, Cargojet reported revenue of $254.7 million, compared to $271 million in the year-ago period. Its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) also fell from $82.9 million to $81.6 million in the last 12 months.
The company reported an adjusted net income of $28.5 million in Q4, higher than the net income of $18 million in the same period in 2022.
Cargojet emphasized the economic environment was quite challenging in 2023, which was also a transitional year as the company moved from a period of hypergrowth during COVID-19 to focus on cost optimization amid an uncertain and volatile macro backdrop.
Cargojet has rationalized capital expenditure plans and managed costs to maintain strong profit margins. In Q4, it reported a free cash flow of $37.9 million, compared to an outflow of $99.6 million in the year-ago quarter.
Cargojet also pays shareholders a quarterly dividend of $0.315 per share, which means it deployed $5.3 million to service the payout. It suggests that Cargojet has a payout ratio of 14%, providing it with enough room to strengthen the balance sheet, invest in capital expenditures and raise dividends further.
What is the target price for Cargojet stock?
In a press release last month, Cargojet chief executive officer, Dr. Ajay Virmani, stated, “Forecasts continue to indicate that the international air cargo market will remain soft in the short to medium term and deploying B-777s into the market would not be strategically prudent. We have decided to exit our commitments for the four remaining B-777 aircraft, while continuing to flex our B767 fleet to accommodate our organic growth strategy.”
Cargojet also explained it does not expect to incur meaningful growth capital expenditures in 2024. However, the company will monitor macro conditions for opportunities to deploy capital in the future.
A focus on cost optimization will allow Cargojet to increase adjusted earnings per share to $3.45 in 2024, up from $2.06 per share in 2023. Comparatively, sales are forecast to rise to $954 million this year.
Priced at less than two times forward sales and 33.5 times forward earnings, CJT stock is not too cheap. Analysts remain bullish and expect shares to rise by 27% in the next 12 months.
