Cargojet (TSX:CJT) stock has lost about 46% of its value in the past three years as demand normalization post-COVID and macroeconomic weakness impacted its financial performance. Nevertheless, the past month has seen a promising uptick, with shares of this air cargo company gaining approximately 24%. This appreciation in Cargojet stock is attributed to the anticipation of heightened customer demand and increased retail activity during the holiday season.
Adding to the optimism is the expected reduction in interest rates, which will likely fuel demand and reaccelerate its sales and earnings growth. Further, the company is taking several strategic measures to enhance its efficiency and boost growth. Thus, now is the right time to invest in this Canadian stock, which offers significant value near the current levels.
Let’s dig deeper to understand why Cargojet is poised to deliver solid returns in the long term.
Cargojet’s fundamentals remain strong
While Cargojet stock has corrected significantly from its peak, its fundamentals remain strong. The company is Canada’s only national network facilitating next-day courier services to more than 90% of the Canadian population. This is a solid competitive advantage over peers and positions it well to capitalize on the renewed surge in e-commerce demand.
Adding to its strength is Cargojet’s long-term customer contracts featuring minimum revenue guarantees and provisions for passing through uncontrollable variable cost increases. These contracts bring stability to the company’s financials. Moreover, they enable Cargojet to deliver predictable growth, safeguard margins, bolster earnings, and sustain dividend payouts in all market conditions.
It’s worth highlighting that Cargojet has strategic alliances with prominent logistics entities such as United Parcel Service Canada, Purolator, Canada Post, Amazon, and DHL. Its agreements with these leading brands have minimum volume guarantees and renewal options. Besides offering stability, these contracts are earnings-accretive for Cargojet as they stimulate demand for its other offerings, including charter, ACMI (Aircraft, Crew, Maintenance, and Insurance), and aircraft dry lease services.
Furthermore, Cargojet benefits from its fuel-efficient fleet and non-unionized workforce. In addition, its high customer retention rate is a positive. The company prudently manages its capital expenditures and focuses on reducing operational costs, which positions it well to generate cash even amid a soft demand environment.
Growth to accelerate
The economic recovery and Cargojet’s leadership in Canada’s domestic air cargo space will likely accelerate its growth in the coming years. While its long-term contracts will continue to support its financials, the company’s focus on capturing new cross-border and international opportunities via growing its ACMI services for international courier customers augurs well for growth.
Additionally, Cargojet’s ongoing commitment to optimizing its fleet utilization rate, diversifying revenue streams by offering ground-handling services to external shippers, maintaining a cost advantage over competitors, and prioritizing margin enhancement all contribute to a positive outlook for the company.
Bottom line
Cargojet presents a compelling opportunity for long-term investment. Additionally, with the correction in its price, the shares appear attractive from a valuation standpoint. Its dominant positioning in the cargo market, focus on revenue diversification, cost reduction, and reacceleration in e-commerce demand support my optimistic outlook.
