Here's Why One Should Retain Canadian Pacific (CP) Stock Now
Canadian Pacific Kansas City Limited CP is benefiting from its freight-market conditions as well as shareholder-friendly measures.
Factors Favoring CP
With the gradual recovery in freight-market conditions, freight revenues, which contribute the majority to the top line, increased by 4% in 2021. In 2022, freight revenues increased 10% despite headwinds like supply-chain woes. The upside can be attributed to the increase in freight revenues at key sub-groups like Grain (up 5%), Potash (up 25%), Forest products (up 16%), Metals, minerals and consumer products (up 21%), Automotive (up 16%) and Intermodal (up 30%). Revenues in the Fertilizers and sulfur sub-segment were up 9% year over year. In 2022, total freight revenues per revenue ton-miles rose 11% year over year and total freight revenues per carload increased 9% year over year. Freight revenues increased 38% in the first nine months of 2023.
We are encouraged by the company’s decision to pay dividends even in the current uncertain scenario. The company paid out dividends worth C$507 million in 2021, up 8.6% year over year. In 2022, CP shelled out dividends worth C$707 million, up 39.4% year over year. In the first nine months of 2023, CP shelled out dividends worth C$530 million.
Key Risks
High capital expenditures may hinder the company's free cash flow-generating capacity. Management expects capital expenditures to be C$2.7 billion in 2023. In the 2024-2028 timeframe, Capex is expected to be in the range of $2.6-$2.8 billion per year.
Zacks Rank
CP currently carries Zacks Rank #3 (Hold).
Key Picks
Some better-ranked stocks for investors interested in the Zacks Transportation sector are Air Canada ACDVF and SkyWest SKYW.
Air Canada currently sports a Zacks Rank #1 (Strong Buy). An uptick in passenger traffic is aiding ACDVF. Recently, management announced plans to launch a new year-round route between Montreal and Madrid. You can see the complete list of today’s Zacks #1 Rank stocks here.
The service will commence in May of the following year as part of its expanded international summer 2024 flying schedule to cater to increased demand.
SkyWest currently carries a Zacks Rank #2 (Buy). SKYW's fleet modernization efforts are commendable. Initiatives to reward its shareholders also bode well. The Zacks Consensus Estimate for current-quarter earnings has surged 83.3% in the past 60 days.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Canadian Pacific Kansas City Limited (CP) : Free Stock Analysis Report
SkyWest, Inc. (SKYW) : Free Stock Analysis Report
Air Canada (ACDVF) : Free Stock Analysis Report
