CJT:CC - Down 24% Year to Date Is Cargojet Stock a Buy Today?
2023-10-04 16:40:00 ET
Cargojet ( TSX:CJT ) stock was among the pandemic darlings and benefitted from the solid demand for its time-sensitive delivery services. However, CJT stock has underperformed the broader equity market and is down about 24% year to date. Further, it gave up almost all of its pandemic-related gains.
This decrease can be attributed to the economic reopening, a return to normal demand levels, and macroeconomic challenges, such as reduced consumer spending and e-commerce demand, which have negatively impacted the company’s financial performance and stock price.
Cargojet is battling reduced volumes and excess capacity amid a challenging demand environment. Thus, its primary emphasis is on restructuring its costs and conserving cash, which is positive.
The company is proactively cutting capital expenditures and reducing costs to maintain profitability. For example, Cargojet reduced the number of block hours and kept it at an optimal service level to address fluctuations in volume amidst an unpredictable economic environment. Additionally, the company is making cost adjustments in areas such as overtime, temporary staffing, and training to protect its bottom line.
Cargojet’s emphasis on cost reduction, cash preservation, and bolstering its financial stability positions it well to navigate the persistent challenges smoothly. Furthermore, a rebound in demand will likely lead to a steep recovery in Cargojet stock. Given this context, let’s explore why buying this Canadian stock near the current levels makes sense.
Cargojet is poised to deliver sustainable long-term growth
While the company is witnessing a slowdown in demand, its fundamentals remain intact. For instance, Cargojet maintains a steady growth trajectory driven by its long-term contracts, which include minimum volume assurances and renewal possibilities. These long-term customer contracts generate about 75% of annual revenues. Thus, they contribute to the stability of its revenue stream and offer visibility over future growth.
Furthermore, the contracts all have cost pass-through provisions, safeguarding its profit margins in an unpredictable environment.
Cargojet has also established alliances with top logistics brands. These strategic partnerships add stability to its financials and contribute positively to its earnings. Further, these collaborations are important as they drive demand for its other offerings like charter, aircraft dry lease, and ACMI (Aircraft, Crew, Maintenance, and Insurance).
Besides its long-term contracts and strategic partnerships with logistics companies, Cargojet also benefits from its ability to retain its customers. The company has a very high client retention rate, which is encouraging.
Bottom line
Cargojet’s fundamentals remain strong, paving the path for recovery in its share price. Additionally, the company’s well-established domestic network and next-day delivery capability to about 90% of Canadian households provides a solid competitive advantage over its peers and positions it well to capitalize on the reacceleration in e-commerce demand.
In summary, my optimism about Cargojet stock stems from the company’s diversified sources of revenue and its focus on cost reduction. Moreover, the anticipated recovery in e-commerce demand, new cross-border and international expansion opportunities, long-term contracts, and its ongoing efforts to reduce debt bode well for future growth.
Further, Cargojet stock is trading at the next 12-month price-to-earnings multiple of 20.6, which is well below the historical average, making it attractive near the current levels.
The post Down 24% Year to Date, Is Cargojet Stock a Buy Today? appeared first on The Motley Fool Canada .
Fool contributor Sneha Nahata has no position in any of the stocks mentioned. The Motley Fool recommends Cargojet. The Motley Fool has a disclosure policy .
2023