Investing In Boeing 767-300 Aircraft Will Expand Global Operations

Key Takeaways

• Strategic fleet expansion and new charter routes position Cargojet for sustained revenue and earnings growth amid rising air cargo demand.
  
• Disciplined capital allocation and operational efficiency enhancements bolster shareholder returns and optimize future margins.
  
• Economic headwinds and rising costs may constrain Cargojet's revenue growth and compress profit margins amidst unstable global trade conditions.

Catalysts

Provides time sensitive overnight air cargo services and carriers in Canada.

• Cargojet secured a long-term scheduled charter opportunity between China and Canada, providing an additional revenue stream as air cargo demand increases from China due to platforms like Temu and SHEIN. This is expected to impact future revenue growth positively.
  
• Geopolitical tensions and supply chain disruptions have opened up ad hoc charter opportunities on global routes, contributing to Cargojet's revenue diversification and strengthening future revenue streams.
  
• Cargojet's fleet expansion strategy, including investing in two Boeing 767-300 aircraft, positions the company to capture emerging opportunities from the reduced capacity of Canadian freight operators, potentially enhancing revenue and earnings growth.
  
• The company’s disciplined capital allocation strategy prioritizes optimizing CapEx and generating free cash flow, which supports growth investments and shareholder returns through dividends and share buybacks, potentially boosting earnings and net margins.
  
• Enhancement of IT and cybersecurity capabilities and strategic hiring are expected to support operational efficiency and manage business complexity, likely leading to improved future margins and cost optimizations.

Cargojet Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Cargojet's revenue will grow by 6.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.2% today to 16.7% in 3 years time.
• Analysts expect earnings to reach CA$187.6 million (and earnings per share of CA$11.69) by about February 2028, up from CA$2.3 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.5x on those 2028 earnings, down from 776.1x today. This future PE is lower than the current PE for the CA Logistics industry at 776.1x.
• Analysts expect the number of shares outstanding to decline by 5.96% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.5%, as per the Simply Wall St company report.

Cargojet Future Earnings Per Share Growth

Risks

• The transportation sector in North America is facing weak domestic volumes, which could pose a challenge for Cargojet to drive significant domestic revenue growth.
  
• Economic slowdowns and high inflation in North America may continue to dampen domestic e-commerce volumes, potentially affecting future revenue streams.
  
• Geopolitical tensions and economic uncertainties, such as tariffs or changes in trade policies, could impact the stability and predictability of businesses like Cargojet which rely on global trade routes, affecting revenue.
  
• Rising costs in the aviation and broader supply chain sectors, specifically wages and operating costs, might compress Cargojet's profit margins in the future.
  
• The global pilot shortage and associated increase in training and overtime costs could create ongoing financial pressure, potentially affecting Cargojet’s operational costs and net margins.

Valuation

• The analysts have a consensus price target of CA$161.091 for Cargojet based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$189.0, and the most bearish reporting a price target of just CA$120.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$1.1 billion, earnings will come to CA$187.6 million, and it would be trading on a PE ratio of 13.5x, assuming you use a discount rate of 6.5%.
  
• Given the current share price of CA$112.54, the analyst price target of CA$161.09 is 30.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.