Canadian Pacific Railway reported lower than expected earnings in
the fourth quarter of 2014. Adjusted earnings per share of $2.20
missed the Zacks Consensus Estimate of $2.28. Quarterly revenues
climbed 9.5% year over year to C$1,760 million ($1,550 million).
The demand for rail services remained healthy across most business
segments translating into strong year-over-year growth. The company
expects operating ratio for fiscal 2015 to remain below 62% while
revenues are likely to expand between 7% and 8%. Likewise, adjusted
earnings per share for the fiscal are projected to rise over 25%
year over year. We believe that the end of merger talks with CSX
Corp. is a vital blow to the company as the deal would have helped
it counter competition. Moreover, labor issues and commodity risks
may further impede growth. We, thus, maintain our Neutral
recommendation on Canadian Pacific. Our target price is $188 per
Canada and the U.S. The company owns approximately 10,700 miles
of track with an additional 4,700 miles jointly owned, leased or
operated under trackage rights. Of the total mileage operated,
approximately 6,200 miles are located in western Canada, 2,200
miles in eastern Canada, 5,800 miles in the United States Midwest
and 1,200 miles in the United States Northeast.
Canadian Pacific serves the principal business centers of Canada
from Montreal to Vancouver, as well as the U.S. Northeast and
Midwest regions. The company has extended its network reach by
establishing alliances and agreements with other Class I railways
in North America, which allows it to provide services and access
markets across North America beyond its own rail network. It also
serves markets in Europe and the Pacific Rim through direct access
to the Port of Montreal in Quebec, and the Port of Vancouver in
British Columbia, respectively.
Canadian Pacific derives revenues from Freight transport
(accounted for approximately 98% of 2013 total revenue) and Other
services (2%). Freight revenues are earned from transporting bulk,
merchandise and intermodal goods, and include fuel recoveries
billed to the customers. Freight segment consists of:
Grain, consisting mainly of durum, spring wheat, barley, canola,
flax, rye and oats, which are primarily transported to ports for
export and to Canadian and U.S. markets for domestic consumption.
The U.S. grain products mainly including durum, spring wheat, corn,
soybeans and barley are shipped from the Midwestern U.S. to other
points in the Midwest, the Pacific Northwest and Northeastern
Coal consists primarily of metallurgical coal transported from
southeastern British Columbia (BC) to the ports of Vancouver, BC
and Thunder Bay, Ontario, and to the U.S. Midwest. The Coal
business chiefly consists of transportation of thermal coal and
petroleum coke within the U.S. Midwest.
Sulfur and Fertilizers include potash, chemical fertilizers and
sulfur shipped mainly from western Canada to the ports of
Vancouver, BC, and Portland, Oregon, and to other Canadian and U.S.
Forest products include lumber, wood pulp, paper products and
panel transported from key producing areas in western Canada,
Ontario and Quebec to various destinations in North America.
Industrial and Consumer products include chemicals, plastics,
aggregates, steel, mine, ethanol, and other energy related products
(other than coal) shipped throughout North America.
Automotive consists primarily of the transportation of domestic,
imported and pre-owned vehicles as well as automotive parts from
North American assembly plants and from the Port Metro Vancouver to
destinations in Canada and the U.S.
Intermodal consists of domestic and international
(import-export) container traffic. The domestic business consists
primarily of retail goods moving in containers between eastern and
western Canada and to and from the U.S. The international business
handles containers of mainly retail goods between the ports of
Vancouver, Montreal, New York/New Jersey and Philadelphia and
inland Canadian and U.S. locations.
Other revenues are generated mainly from leasing of certain
assets, switching fees, routine land sales and income from business
Canadian Pacific Railway Limited (CP): Read the
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