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Canadian Pacific (CP) Q1 Earnings: What's in the Cards?

Zacks Equity Research

Calgary, Canada-based railroad operator, Canadian Pacific Railway Limited CP is scheduled to report first-quarter 2017 results on Apr 19, after market close.

In fourth-quarter 2016, the company reported lower-than-expected earnings and revenues. The bottom line improved while the top line deteriorated on a year-over-year basis. Revenues were hurt by unfavorable weather conditions on the West Coast and delayed grain harvest. Carloads (volume) were flat year over year while revenue ton-miles fell 3%.

Earnings Whispers

Our quantitative model does not conclusively show an earnings beat for Canadian Pacific in the first quarter. According to our proven model, a company needs the right combination of two key ingredients – a positive Earnings ESP and a Zacks Rank #3 (Hold) or better – to increase the odds of an earnings surprise. However, that is not the case as highlighted below.

Zacks ESP: The Earnings ESP for Canadian Pacific is -1.05% as the Most Accurate estimate is pegged at $1.88 while the Zacks Consensus Estimate is at $1.90. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Canadian Pacific carries a Zacks Rank #3 which increases the predictive power of ESP. However, the company’s -1.05% ESP complicates our surprise prediction.

Please note that Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.

Canadian Pacific Railway Limited Price and EPS Surprise

 

Canadian Pacific Railway Limited Price and EPS Surprise | Canadian Pacific Railway Limited Quote

Factors Likely at Play

We expect the company to face tough times in the first quarter of 2017, as was the case in the fourth quarter of 2016. Unfavorable weather conditions on the West Coast and a delayed grain harvest might hurt results. The company's high debt levels also raise concerns. 

We are, however, impressed with the company’s efforts to control costs to drive the bottom line. The company’s efforts to reward investors through share buybacks and increased dividend payments are impressive as well. Canadian Pacific declared a quarterly dividend of 50 cents per share payable to shareholders of record as of Mar 31, 2017, on Apr 24. The company expects earnings per share growth in high-single digits in 2017, led by an expected increase in volumes and cost-control efforts.

According to Wells Fargo, the improvement in coal prices should benefit railroads immensely. According to the firm, “Eastern Rails” like Norfolk Southern NSC are likely to benefit more in this scenario. Moreover, the firm seems to be bullish on railroads like Canadian Pacific Railway Limited and CSX Corporation CSX.

Price Performance

Shares of Canadian Pacific underperformed the Zacks categorized Transportation - Rail industry over the last six months. The stock lost 2.23% while the industry registered a gain of 13.24% over the same period.

Stock to Consider

Investors interested in railway space may consider Kansas City Southern KSU as our model shows it possesses the right combination of elements to post an earnings beat in its next release.

Kansas City Southern has an Earnings ESP of +0.86% and a Zacks Rank #3. The company will report its first-quarter 2017 results on Apr 21. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Canadian Pacific Railway Limited (CP): Free Stock Analysis Report
 
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