Intrinsic Value Cargojet Inc. (CJT.TO)

• Previous Close: $92.96
• Intrinsic Value: $36.08
• Upside potential: -61%

Stock Valuation Context

Business Model And Market Position

Cargojet Inc. is a dominant player in Canada's time-sensitive overnight air cargo industry, operating a comprehensive domestic and international network. The company generates revenue through a diversified model, including scheduled domestic and international routes, ACMI (Aircraft, Crew, Maintenance, and Insurance) services, and ad-hoc charters for specialized shipments like livestock and emergency relief. Its fleet of 31 aircraft serves key North American, European, and South American markets, positioning Cargojet as a critical logistics partner for e-commerce, healthcare, and industrial clients. The company’s strategic focus on high-demand routes and long-term customer contracts provides stability, while its ability to handle urgent and oversized cargo differentiates it from competitors. Cargojet’s market leadership is reinforced by its extensive operational infrastructure, including flight planning, crew training, and ground handling services, which create barriers to entry for smaller rivals. The growing demand for rapid freight delivery, particularly in e-commerce, further solidifies its position as a backbone of Canada’s air cargo ecosystem.

Revenue Profitability And Efficiency

Cargojet reported revenue of CAD 1.0 billion for the period, with net income of CAD 108.4 million, reflecting a net margin of approximately 10.8%. The company’s diluted EPS stood at CAD 6.69, demonstrating strong profitability. Operating cash flow was robust at CAD 328.6 million, though capital expenditures of CAD 250 million indicate ongoing investments in fleet and infrastructure to support growth.

Earnings Power And Capital Efficiency

The company’s earnings power is underpinned by its high-margin ACMI services and long-term customer contracts, which provide recurring revenue. Capital efficiency is evident in its ability to generate significant operating cash flow relative to its asset base, though debt levels of CAD 755.1 million suggest leveraged growth strategies. The balance between reinvestment and profitability remains a key focus.

Balance Sheet And Financial Health

Cargojet’s balance sheet shows CAD 1.5 million in cash and equivalents, alongside total debt of CAD 755.1 million, indicating a leveraged but manageable position. The company’s ability to service debt is supported by strong cash flow generation, though liquidity remains tight. Investors should monitor debt covenants and refinancing risks given the capital-intensive nature of the industry.

Growth Trends And Dividend Policy

Growth is driven by e-commerce tailwinds and expanding international routes, with revenue showing steady upward momentum. The company pays a dividend of CAD 1.4 per share, offering a yield that appeals to income-focused investors. However, the payout ratio suggests a balanced approach, retaining earnings for reinvestment in fleet expansion and operational scalability.

Valuation And Market Expectations

With a market cap of CAD 1.42 billion and a beta of 0.87, Cargojet trades with moderate volatility relative to the broader market. The valuation reflects expectations of sustained demand for air cargo services, though macroeconomic risks like fuel price fluctuations and supply chain disruptions could impact future performance.

Strategic Advantages And Outlook

Cargojet’s strategic advantages include its entrenched market position, diversified revenue streams, and operational expertise in time-sensitive logistics. The outlook remains positive, supported by e-commerce growth and global supply chain demands. However, competitive pressures and regulatory challenges in international markets could pose headwinds. The company’s ability to adapt to evolving customer needs will be critical for long-term success.

Sources

Company filings, Bloomberg