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


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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 share.


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 Nasdaq, Inc.

This article appears in: Investing Stocks
Referenced Stocks: BC , CP

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