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Canadian Pacific (CP) Up 0.7% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Canadian Pacific (CP). Shares have added about 0.7% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Canadian Pacific due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Q3 Earnings & Revenue Miss at Canadian Pacific

Canadian Pacific’s third-quarter 2021 earnings (excluding 14 cents from non-recurring items) of 70 cents (C$0.88) per share missed the Zacks Consensus Estimate of 75 cents. However, quarterly earnings increased 12.9% on a year-over-year basis. Quarterly revenues of $1,542.4 million (C$1,942 million) missed the Zacks Consensus Estimate of $1,569 million. The top line increased 10.3% on a year-over-year basis due to a rise in freight revenues.

Freight revenues, contributing 97.6% to the top line, rose 4.1% on a year-over-year basis. The company’s freight segment consists of Grain (down 23%), Coal (up 22%), Potash (down 14%), Fertilizers and sulphur (up 11%), Forest products (up 5%), Energy, chemicals and plastics (up 22%), Metals, minerals and consumer products (up 29%), Automotive (down 12%) as well as Intermodal (up 15%). In the reported quarter, total freight revenues per revenue ton-miles (RTMs) rose 8% year over year. Total freight revenues per carload also increased 3% from the year-ago quarter’s reported figure.

On a reported basis, operating income dropped 1%, while total operating expenses increased 8% year over year in the quarter under review. Adjusted operating income increased 1%.  Operating ratio (operating expenses, as a percentage of revenues, on an adjusted basis) deteriorated to 59.4% in the third quarter from 58.2% in the year-ago quarter.  Lower the value of the metric, the better.

Liquidity

The company exited the third quarter with cash and cash equivalents of C$210 million compared with C$147 million at the end of fourth-quarter 2020. Long-term debt amounted to C$8,036 million compared with C$8,585 million at the end of December 2020.

2021 Guidance

Canadian Pacific anticipates adjusted earnings per share to increase in double-digits in 2021 relative to 2020's adjusted diluted EPS of $3.53. Volumes, measured in RTMs, are expected to be in low single-digit (previous expectation: high single digits). The outlook has been trimmed due to the reduced expectations pertaining to Canadian grain crop in 2021-2022 and the prevalent supply chain challenges. Capital expenditures for the year are still estimated at C$1.55 billion. Tax rate is anticipated at 24.6%.


How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

At this time, Canadian Pacific has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Canadian Pacific has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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