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Canadian Pacific (CP) Gains 33% YTD: Will Growth Continue?

Zacks Equity Research

Shares of Canadian Pacific CP have surged 32.9% so far this year compared with the industry's 27.2% growth.

YTD Price Performance

Let’s delve deep to unearth the reasons behind the company’s impressive price performance and find out if there is room for further appreciation:

Canadian Pacific is benefiting significantly from volume growth owing to impressive performances at sub-groups like intermodal, grain and potash.

In 2018, overall carloads had improved 4%. Even though the metric declined in the first quarter of 2019, we believe it was mainly due to harsh weather conditions and network issues.

In May, Canadian Pacific transported 15 million metric tonnes of Canadian grains and grain products through Vancouver, which is a record for the company. We expect overall volumes to be impressive at Canadian Pacific in the second quarter of 2019 as well. Detailed results should be out on Jul 16.

These apart, the company’s efforts to reward its investors through share buybacks and dividend payments are commendable. This May, Canadian Pacific hiked its dividend payout by 27.5% to C$0.83 per share (C$3.32 annually). Evidently, this raise marks the fourth straight year of dividend increase.

Other transportation stocks like Southwest Airlines LUV, J.B. Hunt Transport Services JBHT and Expeditors International of Washington EXPD also raised dividend payouts this year.

Canadian Pacific is also active on the buyback front. The company repurchased around 7.1 million shares worth approximately C$185 million during the first quarter of 2019. Also, it has paid dividends worth C$1.47 billion and returned C$9.2 billion to its shareholders ever since 2014. Improvement in operating ratio is also a positive. In 2018, this key metric improved 30 basis points to 61.3%. Lower the value of the measure the better.

We expect factors like upbeat intermodal volumes and increase in grain carloads to consistently support growth at Canadian Pacific. The expected earnings per share (three to five years) growth rate at Canadian Pacific is a healthy 11.3%, above its industry’s 9.6% growth rate in the same period.

Estimate Revisions & Style Score

Upward estimate revisions reflect optimism over a stock’s prospects. Canadian Pacific scores impressively on this front as well. Over the past 60 days, the Zacks Consensus Estimate for current-year earnings moved almost 1% north, reflecting positive sentiment surrounding the stock. 

Additionally, this Zacks Rank #2 (Buy) stock has an attractive Momentum Score  of A, which highlights its short-term attractiveness. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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