Canadian Pacific Railway Limited
) recently launched its improved intermodal services connecting
Vancouver to Toronto and Chicago. The new services claim to be
faster, with lower terminal dwell times and enhanced transition
time that entails optimum utilization of assets. The new
intermodal services would follow a new schedule that reduces the
travel period by a day for Toronto to Vancouver transcontinental
trains on a 2,600-mile track, and by two days for Vancouver to
Chicago train service on a 2,200-mile track.
Given the new services, Canadian Pacific aims to provide its
customers with superior services and also targets expansion of its
footprint in emerging North American and international markets.
Canadian Pacific is focused on upgrading its network
capabilities by offering facilities for repair and consolidation
that will enable it to operate longer and heavier trains as well as
to deliver on-time performance.
Consequently, the company is focused on enhancing its
infrastructural capabilities with accelerated capital investments.
The company projected long-term investment of nearly C$2.3 billion
for 2011-2028 with approximately C$1.0-$1.2 billion slated for this
year. The company expects to upgrade and install new
sidetracks in key areas in the current year and increase train
length by 11% on transcontinental routes in 2013. To benefit
from the current boom in the energy markets the company is building
networks to ship frac sand, pipe and construction material as well
as other goods required for oil and gas shale production. This
would enable easy access to the main production facilities and
provide an opportunity to transport large volumes to key shale
However, we remain concerned about the prevailing economic
volatility in the U.S. and abroad that may keep Canadian Pacific's
top-line growth under pressure in the near future. Moreover, the
near-term growth for the company is expected to be tempered by
lower coal production.
Lower natural gas prices resulting in weak utility coal market
have raised significant concerns limiting overall coal shipments,
despite strong exports to Asian countries. In addition, weak U.S.
grain shipment due to volatility in feed shipments will remain
significant headwinds for the company.
Further, competitive threats from major rivals like
Canadian National Railway Company
), a highly unionized workforce, and regulatory pressures may limit
the upside potential of the stock.
Canadian Pacific currently holds a short-term (1-3 months) Zacks
#3 Rank (Hold). For the long term, we have retained a Neutral
recommendation on the stock.
CDN NATL RY CO (CNI): Free Stock Analysis
CDN PAC RLWY (CP): Free Stock Analysis Report
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