Valued at a market cap of $2.06 billion, Cargojet (TSX:CJT) has returned roughly 1,370% to shareholders since its initial public offering in January 2011. However, after touching all-time highs in late 2020, the stock trades 48% below record levels today, allowing you to buy the dip.
Let’s see if this cheap TSX stock is a good investment option in August 2024.
Why should you invest in Cargojet stock?
Cargojet provides overnight air cargo services and carriers. The company operates air cargo networks between 16 Canadian cities and provides aircraft to customers on an AMCI (aircraft, crew, maintenance, and insurance) basis in the Americas and Europe. Armed with a fleet of 41 aircraft, Cargojet carries over 25 million pounds of cargo each week.
Cargojet recently inked a three-year agreement with Great Vision HK Express to provide charter services between China and Canada. It will operate at least three flights each week to service the rapidly expanding e-commerce sector, earning $160 million through the expiry of the agreement.
Great Vision provides customers with integrated logistics supply chain solutions between Canada and China, which includes air freight, customs clearance, distribution, and last-mile delivery.
A strong performance in Q1 of 2024
Cargojet reported revenue of $230.8 million in the second quarter (Q2) of 2024, up more than 10% year over year. Its revenue from the domestic network, ACMI, and all-in charter rose from $171.6 million to $191.3 million in the last 12 months.
Cargojet’s adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) stood at $79 million, up from $74.3 million last year. Its top-line growth and focus on operational efficiencies allowed Cargojet to report an operating cash flow of $48.5 million and a free cash flow of $0.5 million in Q2, indicating it spent $48 million in capital expenditures.
Cargojet emphasized its continued efforts to identify and execute opportunities in the global supply chain industry. “While geopolitical challenges and broader economic headwinds continue to affect the overall transportation industry, we remain focused on growing our Domestic, ACMI, and All-in Charter revenue,” said Jamie Porteous, co-chief executive officer.
Cargojet’s focus on controlling costs and maintaining its EBITDA (earnings before interest, tax, depreciation, and amortization) margins has resulted in a strong Q2 quarter.
Is Cargojet stock undervalued?
Cargojet’s national network enables next-day service for the courier industry to more than 90% of Canada’s population, providing it with a solid competitive advantage. Its customer contracts are long-term in nature, with minimum revenue guarantees and cost pass-through provisions for increases in uncontrollable variable costs such as fuel. Moreover, Cargojet’s unique mix of customers and cargo allows the company to optimize density and space.
In addition to multiple competitive moats, Cargojet is forecast to expand its adjusted earnings per share from $2.06 in 2023 to $4.59 in 2024 and $5.8 in 2025. So, priced at 22 times forward earnings, the TSX stock is quite cheap, given its stellar growth forecasts.
Analysts remain bullish and expect the undervalued stock to gain 25.6% in the next 12 months. In addition to capital gains, investors are also positioned to benefit from a dividend yield of 1.1%, given that Cargojet pays shareholders an annual dividend of $1.4 per share.
