Cargojet’s Growth Amid Inflationary Pressures: Hold Rating Based on Margin Constraints and Expansion Challenges

In a report released yesterday, Fadi Chamoun from BMO Capital maintained a Hold rating on Cargojet (CGJTF – Research Report), with a price target of C$120.00.

Fadi Chamoun’s rating is based on several key considerations regarding Cargojet’s current financial and operational stance. The company has successfully tapped into the strong demand environment driven by e-commerce in fiscal year 2024, but its operating leverage has been constrained by the costs of initiating new contracts and persistent inflationary pressures within the aviation sector. Although Cargojet’s Q4/24 core revenues surpassed expectations, the profitability was limited due to these start-up costs, which include crew incentives.
Furthermore, Cargojet has increased its capital expenditures significantly to expand in the international freight market, which is perceived to offer lower risk-adjusted returns compared to its domestic network. While this move presents growth opportunities, it also poses challenges, particularly in terms of margin expansion amid ongoing inflationary trends and potential crew cost increases. The company’s strategy to optimize start-up costs and focus on productivity may help, but the immediate-term opportunities for margin improvement appear limited. Consequently, despite a positive revenue outlook and EBITDA forecast, these factors contribute to the Hold rating.