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Here's Why You Must Give Canadian Pacific (CP) Stock a Shot

Zacks Equity Research

Canadian Pacific Railway Limited’s CP reduced costs are helping it better deal with the low-volume scenario, thanks to coronavirus. The company’s operating expenses dipped 1.2% year over year in the first quarter. Consequently, operating ratio (operating expenses as a percentage of revenues) improved to 59.2% in the quarter from 69.3% in the year-ago period. The low costs are a result of the precision-scheduled railroading model, an operating structure that reduces costs, enhances services and leads to optimal asset utilization.

Despite coronavirus-induced softness in some segments, the company’s freight revenues rose 15.9% year over year in the first quarter. With this, the top and the bottom lines increased in double digits. With economies having opened up since May, volumes are likely to improve going forward and in turn, drive revenues.

Canadian Pacific’s acquisition of Central Maine & Quebec (CMQ) Railway network should foster growth. Apart from strengthening the company’s presence, the buyout enhances customer experience by providing smooth, secure and efficient access to the ports at Searsport, ME, and Saint John, New Brunswick via Eastern Maine Railway Company (EMRY) and New Brunswick Southern Railway (NBSR). This month, the company completed acquisition of the Central Maine & Quebec Railway US Inc. Combining CMQ Canada and CMQ US, Canadian Pacific is a 13,000-mile rail network connecting the Atlantic coast to the Pacific coast across six Canadian provinces and 11 U.S. states.

Canadian Pacific Railway Limited Price and Consensus

 

Canadian Pacific Railway Limited Price and Consensus

Canadian Pacific Railway Limited price-consensus-chart | Canadian Pacific Railway Limited Quote


Although Canadian Pacific has temporarily suspended share buybacks since March to address coronavirus-related challenges, we expect the company to resume such activities once the volume scenario improves. With businesses having opened up and operations picking up, that might not be very long. Notably, during the first quarter, the company repurchased shares worth $468 million.

Amid these positives, the Zacks Consensus Estimate for current-quarter earnings has been revised upward 4.1% in the last 60 days. The same for 2020 earnings has been moved approximately 1% northward.

Against this buoyant backdrop, we believe the time is ripe for investors to add the Canadian Pacific stock to their portfolios now, as is suggested by its Zacks Rank #2 (Buy).

Other Key Picks

Some other top-ranked stocks in the broader Transportation sector are Scorpio Tankers Inc. STNG, Teekay Tankers Ltd. TNK and Frontline Ltd FRO. While Scorpio Tankers and Frontline sport a Zacks Rank #1 (Strong Buy), Teekay Tankers carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Scorpio Tankers’ current-year earnings has been revised upward by 55% in the past 60 days.

The Zacks Consensus Estimate for Frontline’s current-year earnings has been revised 17.1% upward in the past 60 days.

The Zacks Consensus Estimate for Teekay Tanker’s current-year earnings has been revised 27.1% upward in the past 60 days.

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