Shares of Cargojet Inc. (CJT-T) are down by about 15 per cent from their record high on Monday after Air Canada signalled plans to expand its cargo business. Analysts say Cargojet’s stock also tapered off alongside other names that benefitted from a surge in e-commerce during the pandemic, amid rising hopes for a COVID-19 vaccine.
Cargojet shares hit a record $250.01 on the Toronto Stock Exchange early Monday, but then ended the day down 13 per cent from Friday’s close of $242.55. The stock closed down about 3 per cent on Tuesday to $204.39. The shares have dropped by about 15 per cent over the past five days but have doubled over the past year.
The stock soared last week after the company reported earnings that beat expectations and amid high expectations for a continuation of the online shopping trend. However, Monday’s news of a potential vaccine on the horizon dulled some of that excitement around e-commerce and related stocks.
“CJT has been grouped with a number of tech stocks where e-commerce demand is expected to be accelerating and with the vaccine announcement could find itself a bit on the other side of the ‘recovery’ trade,” ATB Capital Markets analyst Chris Murray said in an email to the Globe on Tuesday. (CJT is the stock ticker for Cargojet).
Still, Mr. Murray believes Cargojet’s “fundamentals and growth [are] very much intact as consumers have learned to use and like e-commerce as a channel.”
Investors are concerned about Air Canada’s news Monday that it’s looking at returning to the dedicated all-cargo market, converting older and parked 767-300 aircraft, he added.
“This is more of an international focus, still requires pilot union approval and AC said yesterday it might be two aircraft in 2021 focused on international flights leveraging the domestic network,” Mr. Murray said. (AC is the stock symbol for Air Canada).
“While incremental to Air Canada, we do not see this as a significant issue for Cargojet,” added Mr. Murray, who has an “outperform” (similar to by) and $300 price target on Cargojet shares.
Acumen Capital analyst Nick Corcoran believes the Cargojet sell-off is “overdone.” In an email to the Globe, Mr. Corcoran, who has a “buy” and $320 target on Cargojet, said the company is diversifying its business with new Aircraft, Crew, Maintenance and Insurance (ACMI) routes and says a vaccine could increase the need for charter flying in 2021. Also, he notes Cargojet management has signalled its domestic volumes “can double or triple as e-commerce in Canada catches up with the U.S and UK over the next three to five years.”
Canaccord Genuity analyst Doug Taylor said investors appear concerned about increased competition in the air cargo space after Air Canada’s news on Monday.
“Belly capacity from airlines is competitive on some of Cargojet’s business and if that is going to come back then some competition comes back,” he said in an email.
Cargojet is also being caught up in the broader market “rotation from growth to value,” Mr. Taylor added. He has a “hold” and $250 target on Cargojet.
Scotiabank analyst Konark Gupta said in a note to clients the recent drop in Cargojet shares was likely driven “mostly by profit-taking as investors favoured laggards following Pfizer’s announcement that its COVID-19 vaccine candidate may be 90 per cent effective... so we are not overly surprised by the stock’s pullback especially given the valuation was stretched, in our view.”
He also cited the Air Canada news as another reason for the weakness.
“While Air Canada’s plan looks credible, in our view, we don’t think CJT would lose sleep over it, given it enjoys a strong competitive moat and Air Canada could start as a marginal player,” he wrote. “Although we have been relatively more cautious on CJT due to its rich valuation, we would look to opportunistically taking advantage of any further significant weakness... from current levels.”
He has a “sector perform” (similar to hold) and a $230 target on the stock.
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