Cargojet (TSX:CJT) stock has faced challenges throughout this year due to subdued demand and macroeconomic weakness impacting its financial performance. However, the upcoming fourth quarter is expected to bring a positive turn, significantly uplifting its financials and stock value. Therefore, December presents an opportune time to consider investing in Cargojet.
Notably, the fourth quarter traditionally sees the highest customer demand, driven by increased retail activity during the holiday season in December. This seasonal boost has already begun to reflect in Cargojet stock. Shares of this air cargo company have gained about 25% over the past month.
While Cargojet stock has marked a notable recovery, it still looks attractively priced, trading at a discount from its 52-week high. This presents a favourable entry point for investors at current levels. Besides the seasonal boost, which is anticipated to lift its share price, let’s look at other factors that support my bull case on this Canadian stock.
Cargojet’s Fundamentals Remain Strong
Cargojet’s fundamentals remain strong even as the company faces macroeconomic challenges and grapples with normalization in demand alongside excess capacity. Cargojet implemented strategies to boost efficiency and conserve cash. Further, it curtailed capital expenditures and trimmed operational costs. In addition, Canada’s leading air cargo company optimized its domestic network by reducing block hours. Moreover, it maintained optimal service levels. Also, it made adjustments related to costs, bolstering its margins.
In summary, Cargojet’s efforts to enhance efficiency and preserve its cash position are working favourably towards navigating short-term challenges. The company’s commitment to cost management and long-term contracts is improving its financial and operating performance.
Contractual arrangements add stability
While Cargojet’s fundamentals remain strong, its long-term customer contracts add stability to its business. Noteworthy are its long-term agreements, underpinned by minimum volume guarantees and renewal options, offering assurance and visibility into future revenues. Moreover, these contracts feature cost pass-through provisions, safeguarding margins in unpredictable variable cost scenarios.
It’s worth highlighting that Cargojet’s earnings are poised to grow in the coming quarters, fueled by strategic partnerships with leading logistics brands. The company has solidified its alliances with key players such as Canada Post and Purolator. Moreover, these collaborations are backed by minimum guaranteed volume commitments.
Additionally, Cargojet has successfully renewed and extended its contract with United Parcel Service Canada. Further, the company has forged strategic alliances with industry leaders such as DHL and Amazon. These partnerships will likely fortify earnings by stimulating demand for its services, including charter, ACMI (Aircraft, Crew, Maintenance, and Insurance), and aircraft dry lease services.
Bottom line
Cargojet is a leader in the Canadian air cargo sector. The company leverages its extensive domestic network to provide next-day delivery to over 90% of households nationwide. This adds to the company’s competitive advantage, particularly during the heightened demand during the holiday season. Additionally, Cargojet boasts a high customer retention rate, which is positive.
Overall, the resilience of its business model, long-term contacts, focus on improving efficiency, and reducing debt support my optimistic outlook. Considering these favourable factors and an expected jump in demand during the holiday season, investing in Cargojet stock is a good decision for December.
