Canadian Pacific Railway Limited (CP): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
We are maintaining our Neutral recommendation on Canadian Pacific Railway. The company remains focused on volume expansion, operational efficiency, pricing revision and network capability upgrade. We believe that strength in the Merchandize segment and Canadian coal exports will lead to higher revenues and earnings in the coming quarters. With the Industrial and Automotive segments looking bright, we expect these to counterbalance the weak outlook on the coal business. On the flip side, substitution of coal with natural gas will continue to affect the company's coal shipments. Canadian Pacific's global operations also face uncertainties with labor issues, commodity risks related to the purchase of diesel fuel, competition from other Canadian and U.S. firms and currency fluctuations. We expect the company to perform at par with the broader market in the coming months.

Overview:

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 U.S.

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. destinations.

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 partnerships.


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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 The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: BC , CP

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