What are we looking for?
This week we are looking at valuations for transportation and logistics companies. These companies move us and our goods across the country and around the world. Our search includes companies that deliver by air, rail, water and ground as well as the logistics companies they work with.
The screen
We used StockCalc’s screener to select the top 10 transportation and logistics companies listed by market capitalization, on the TSX. We then used StockCalc’s valuation tools to calculate fundamental (or intrinsic) valuation for each stock to see if it is undervalued or overvalued compared with its price.
Overview of the techniques used:
- Discounted cash flow (DCF value) is a valuation technique in which cash-flow projections are discounted back to the present to calculate value per share;
- A price comparables (price comps) technique values the company on the basis of ratios from selected comparable companies;
- An adjusted book value (ABV) is calculated by multiplying book value-per-share by its 10-year average price-to-book ratio.
- If we have analyst coverage, we look at the consensus target price.
More about StockCalc
StockCalc is a fundamental valuation platform with tools to calculate and report on value-per-share for thousands of public companies listed on major North American stock exchanges. StockCalc also contains numerous tools to understand what the stocks you are investing in are worth. Globe Unlimited subscribers can subscribe to StockCalc using the promo code Globe30, which offers a 30-day free trial and special pricing for the second month.
What we found
You can see in the accompanying table the percentage difference between each stock’s recent close price and its intrinsic value. The StockCalc Valuation column is a weighted calculation derived from our models and analyst target data, if used.
Given the large value of assets they employ, transportation companies have high debt levels and high associated fixed costs. Those debt levels and their operating proficiency with those assets – the operating ratio – have a direct bearing on valuation. The high fixed costs can be a barrier to entry which keeps potential competitors out.
Fuel represents a large percentage of the expenses these companies deal with. Air Canada’s most recent financial statements show $1.25-billion in fuel expenses, which amounts to 24 per cent of total revenue generated for the quarter. These companies also have large work forces and have been experiencing wage and inflationary pressures over the last two years. Of note, both our weighted valuation and analyst targets for these stocks are above current price for all 10 companies listed, implying an undervalued sector. From a dividend perspective, four of these 10 stocks have dividend yields above 5 per cent.
Let’s look at a couple of these companies:
Canadian National’s CNR-T railway spans Canada from coast to coast and extends through Chicago to the Gulf of Mexico. In 2023, CN generated $16.8-billion in revenue by hauling intermodal containers – those used for shipping via more than one mode of transport – (23 per cent of consolidated revenue), petroleum and chemicals (19 per cent), grain and fertilizers (19 per cent), forest products (12 per cent), metals and minerals (12 per cent), automotive shipments (6 per cent) and coal (6 per cent).
In their first-quarter results announced April 23, CN reaffirmed its 2024 outlook for diluted EPS growth of approximately 10 per cent, driven by increasing volumes faster than the economy is expanding, pricing above rail inflation and incrementally improving efficiency, all of which assume a supportive economy. They also expect to invest $3.5-billion in their capital program and announced a $1.25-billion debt offering on April 30 to be used for general corporate purposes, which may include the redemption and refinancing of outstanding indebtedness, share repurchases, acquisitions and other business opportunities. Our models show CNR-T as slightly undervalued at this time.
Cargojet Inc. CJT-T operates a domestic air cargo network that consolidates shipments between major Canadian cities. The company provides dedicated aircraft, crew, maintenance and insurance for customers operating between points in Canada, United States, Mexico and Europe. Cargojet’s stock has been moving up recently after it announced it signed a three-year deal with China-based Great Vision HK Express to provide scheduled charter flights between Hangzhou, China, and Vancouver. Revenue and net income for the first quarter are also up over the past 12 months. Our models are also showing CJT-T as slightly undervalued at this time.
Of note, our models show Chorus Aviation CHR-T as the most undervalued on this list.
Investing involves risk. StockCalc accepts no liability whatsoever for any loss or damage arising from the use of this analysis.
Brian Donovan, CBV, is the president of StockCalc, a Canadian fintech based in Miramichi, N.B.