Canadian Pacific Expects Promising 1Q - Analyst Blog


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One of the leading railroads of Canada, Canadian Pacific Railway Limited ( CP ) announced its first quarter 2012 earnings estimates in the band of 80-83 cents per share, representing a jump of approximately 320% from its year-earlier earnings of 19 cents. However, the estimated earnings remain well below $1.07 per share earned during fourth quarter 2011.

Currently, the Zacks Consensus Estimate is pegged at 67 cents, representing a 251.7% year-over-year growth.

We remain positive on the other product lines of Canadian Pacific. The company's automotive business is expected to register continued growth on the back of recovery in North American auto production coupled with its recent 5-year agreement with Canadian Tire Corporation for providing various supply chain solutions for Canadian Tire's growing retail business.

Further, the Marcellus Shale natural gas production unit and Alberta's Industrial Heartland area, Canada's largest hydrocarbon processing unit, is expected to support the company's revenue and market share gains in the upcoming year.

Forest Products are expected to grow on higher demand for pulp and modest growth of lumber in China while grain shipment will remain healthy given strong market demand for Canadian grains and oilseeds. We also expect continued strength in domestic intermodal shipment owing to truckload conversion to rail Intermodal.

However, we believe that the prevailing economic volatility in the U.S. and abroad may keep Canadian Pacific's top-line growth under pressure. Moreover, the near-term growth for the company could be tempered by lower coal production forecasts by the U.S. Energy Information Administration. Lower natural gas prices that have resulted in weak utility coal market have raised significant concerns limiting overall coal shipments, despite strong exports to Asian countries. Weak U.S. grain shipment due to volatility in feed shipments, rise in effective tax rate (25-27%), and interest and pension expenses amounting of $280 million will remain significant headwinds over the near term.

Further, rising fuel prices, competitive threats from railroads like Canadian National Railway ( CNI ), exchange rate fluctuations, a highly unionized workforce and regulatory pressures also keep us on the sidelines.

Consequently, we have a Neutral recommendation on Canadian Pacific supported by a Zacks #3 Rank (Hold).

CDN NATL RY CO ( CNI ): Free Stock Analysis Report
CDN PAC RLWY ( CP ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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