Air Canada (TSX: AC) and CargoJet (TSX: CJT) are two of the main Canadian airline stocks that investors can buy directly. Both stocks are directly listed on Canadian stock exchanges. Porter is privately owned, while the formerly public WestJet is now part of Onex Corp. That leaves AC and CJT as the two main ways to get exposure to the Canadian aviation sector.
As it turns out, AC and CJT are two very different takes on the aviation business model. Air Canada is primarily a passenger airline transporting Canadians all around Canada and the world. Cargojet is, as the name implies, a cargo airline, primarily transporting small packages originating from e-commerce companies. In this article, I will explore the two companies side by side, so you can decide which is the best fit for your portfolio.
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Valuation favours Air Canada
Air Canada is a far cheaper stock than Cargojet is. As you can see in the table below, it has lower price-to-sales (P/S), price-to-earnings (P/E), and price-to-book (P/B) ratios than CJT. If you were buying stocks based on cheapness alone, you’d favour Air Canada over CJT.
| Air Canada | Cargojet | |
| P/E | 3 | 49 |
| Price/sales | 0.3 | 2.2 |
| Price/book | 9 | 2.3 |
| Price/cash flow | 1.5 | 8.8 |
If you exclude Air Canada’s P/B as an outlier, then it is much cheaper than Cargojet’s. In fact, even with AC’s very high P/B ratio in the picture, it has lower multiples than CJT, although that metric is extremely high mainly because of debt that the company is in the process of paying off. In this author’s opinion, it ought to be excluded.
Cargojet has more long-term growth
Cargojet has more long-term growth than Air Canada does. I put “long term” in italics because the current year’s trend actually favours Air Canada: its revenue and earnings are up, while CJT’s are down. But the long-term trend is in CJT’s favour, as the table below shows.
| Five-year compounded growth (CAGR) metric | Air Canada | Cargojet |
| Revenue | 3.8% | 13.7% |
| Earnings | 20.5% | 13.9% |
| Assets | 1.8% | 16.2% |
| Book value | 5.4% | 47% |
As you can see, Air Canada takes the cake on earnings per share growth, but Cargojet wins on every other one. On the whole, I’d call this a victory for Cargojet.
Air Canada is more profitable
Last but not least, we have profitability. Air Canada is very profitable this year, with a 9.9% net margin, 8.8% free cash flow margin, and 34% gross profit margin. Cargojet on the other hand has a 4.5% net margin, 5.5% free cash flow margin, and 16% gross profit margin. These metrics all favour Air Canada. AC also technically has a higher return on equity than Cargojet does – a whopping 300%! – but that’s largely because of the company’s tiny amount of book value. It doesn’t really indicate massive profitability in this case.
Final verdict: Air Canada by a hair
Taking everything into account, Air Canada seems preferable to Cargojet. It is cheaper and far more profitable than that company is. CJT does take the case on long-term growth, but even that reversed in the last year. So I’d be more comfortable owning AC than CJT.
