Cargojet Inc. (TSX:CJT): A Near-Monopoly in Canada's Air Cargo Market with Undiscovered Value

Canada's air cargo sector is a niche but critical market, and Cargojet Inc. (TSX:CJT) has carved out an almost unassailable position within it. With 90% of the domestic overnight air cargo market, the company's dominance is underpinned by high barriers to entry, a strategic infrastructure network, and a growing tailwind from e-commerce demand. Yet despite its robust fundamentals—18% revenue CAGR since 2020 and 26% EBITDA CAGR—its valuation remains disconnected from its intrinsic worth. Here's why investors should take notice.

Strategic Dominance: A Near-Monopoly Built on Reliability

Cargojet's 90% share of Canada's domestic overnight air cargo market is no accident. The company's network spans 15 major Canadian cities, supported by a fleet of 41 aircraft optimized for speed and efficiency. Its 99.7% on-time performance (within 15 minutes of schedule) has made it the go-to partner for logistics giants like Amazon, UPS, DHL, and Purolator. These clients account for 75% of domestic revenue, locked in via long-term contracts with minimum volume guarantees.

The barriers to replicating this dominance are steep. Regulatory hurdles—Canada's stringent aviation safety standards and route approvals—coupled with the capital-intensive nature of air cargo operations (e.g., $100+ million invested in its Hamilton hub) deter new entrants. Even legacy carriers like Air Canada have ceded ground, focusing instead on passenger routes and bellyhold cargo.

Growth Catalysts: E-Commerce and Contract Renewals

Cargojet's moat is being reinforced by secular trends. E-commerce adoption in Canada is projected to hit $82 billion by 2027, fueling demand for fast, reliable air freight. The company is already capitalizing: its four-year extension with Amazon (extensible to 2031) guarantees steady revenue, while partnerships with cross-border shippers like Great Vision HK Express (a $160M+ deal) tap into Asia-Pacific growth.

Meanwhile, its fleet strategy—phasing out older Boeing 777s in favor of optimized 767s and 757s—ensures cost discipline. With $160M in cash and no debt, Cargojet can reinvest in infrastructure (e.g., a 70,000-sq-ft sorting facility in Hamilton) without dilution, further entrenching its lead.

Valuation Disconnect: Undervalued Despite Strong Fundamentals

Despite its dominance, Cargojet trades at a 6.6x 2026E EBITDA multiple, a stark discount to its 10x historical average. This mispricing is puzzling given its financial trajectory:

• Revenue: Projected to grow at 18% CAGR through 2026, driven by e-commerce and contract renewals.
• EBITDA: Expected to expand at a 26% CAGR, benefiting from fixed-cost leverage and fuel-efficient fleets.

Analysts are taking notice. Stifel upgraded the stock to "Strong-Buy" in April 2025, while Canaccord Genuity's C$173 price target (vs. a current C$80.21 share price) highlights the upside. The consensus C$148.50 target implies a 85% potential return, even as the stock faces near-term volatility tied to macroeconomic headwinds.

The Scarcity Play: Takeover Potential?

Cargojet's strategic assets could also make it a takeover target. Its overnight air cargo network is a rare commodity in Canada, and global logistics giants like FedEx or DHL might find it an attractive acquisition to expand their North American footprint. Even a domestic player like Air Canada, seeking to bolster its cargo division, could eye a deal.

Investment Thesis: Buy the Dip, Target the Takeover

Cargojet's valuation is out of sync with its fundamentals. The 6.6x EBITDA multiple is a screaming bargain for a company with 90% market share, long-term contracts, and secular growth tailwinds. While near-term risks like interest rates and cargo demand fluctuations could pressure the stock, the C$148.50 consensus target suggests a compelling entry point around C$80.

For investors, this is a "buy the dip, hold for the catalyst" opportunity. The potential for a takeover or a re-rating to historical multiples could deliver outsized returns. As Cargojet's contracts roll forward and e-commerce demand accelerates, the stock's current undervaluation should correct—likely sooner rather than later.

Final Call: Buy Cargojet Inc. (CJT) at current levels. The near-monopoly, strong balance sheet, and analyst upgrades make this a rare value proposition in a world of overpriced growth stocks.

Disclosure: This article is for informational purposes only and does not constitute financial advice. Always conduct your own research or consult a licensed advisor before making investment decisions.