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Will High Volumes Aid Canadian Pacific's (CP) Q4 Earnings?

Zacks Equity Research

Canadian Pacific Railway Limited CP is scheduled to report fourth-quarter 2017 results on Jan 18 after the market closes.

Last quarter, the company reported in-line earnings and lower-than-expected revenues. However, both the bottom and the top line improved substantially from the year-ago figures.

Let’s see how things shape up this earnings season.

Why a Likely Positive Surprise?

Our proven model shows that Canadian Pacific is likely to beat on earnings this quarter on the back of a perfect combination of the following two key ingredients:

Zacks ESP: Canadian Pacific has an Earnings ESP of +0.27%. A positive Zacks ESP serves as an indicator of a likely positive earnings surprise. 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 (Hold). Note that stocks with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have significantly higher chances of beating estimates.

Conversely, Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is witnessing negative estimate revisions.

Canadian Pacific Railway Limited Price and EPS Surprise

 

Canadian Pacific Railway Limited Price and EPS Surprise

Canadian Pacific Railway Limited price-eps-surprise | Canadian Pacific Railway Limited Quote

What is Driving the Better-than-Expected Earnings?

The company’s cost-cutting efforts are expected to drive its bottom-line growth in the fourth quarter. This is likely to boost its operating ratio as well, similar to the previous quarter.

Additionally, increased volumes are anticipated to buoy results in the quarter. Notably, the company raised guidance for 2017 on the back of increased volumes. Canadian Pacific now expects a double-digit rise in adjusted earnings per share for 2017 compared with C$10.29 in 2016.

The improved coal scenario is a further positive, which is likely to benefit the top line in the to-be-reported quarter.

Moreover, the company’s initiatives to reward investors through share buybacks and hiked dividend payments are impressive.

However, declining revenues at the automotive and intermodal unit may hurt results in the quarter.

Other Stocks to Consider

Investors also interested in the broader Transportation sector may check out American Airlines Group, Inc. AAL, Spirit Airlines, Inc. SAVE and JetBlue Airways Corporation JBLU stocks comprising the right combination of elements to surpass estimates this time around:

American Airlines has an Earnings ESP of +1.27% and a Zacks Rank of 3. The company will report fourth-quarter earnings on Jan 25.

Spirit Airlines has an Earnings ESP of +2.39% and is a Zacks #3 Ranked player. The company is scheduled to report fourth-quarter earnings on Feb 6. You can see the complete list of today’s Zacks #1 Rank stocks here.

JetBlue has an Earnings ESP of +1.40% and the stock is a #3 Ranked player. The company will report fourth-quarter earnings on Jan 25.

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