Will Canadian Pacific Railway (CP) Disappoint Q1 Earnings? - Analyst Blog

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Canadian Pacific Railway LimitedCP is slated to release its first-quarter 2015 financial numbers before the market opens on Apr 21.

In the last reported quarter, the company's earnings had missed the Zacks Consensus Estimate by 3.51%. Moreover, the company has delivered negative earnings surprises in all of the prior four quarters, with an average miss of 4.30%. Let's see how things are shaping up ahead of this announcement.

Factors Likely to Influence this Quarter

We believe Canadian Pacific Railway is set to gain from strength in Industrial and Consumer products, domestic Intermodal and Automotive segments. Moreover, a robust Merchandise segment and increased Canadian coal exports should lead to higher revenues and earnings, going ahead. Further, the company expects operating ratio for full year 2015 to remain below 62% while revenues are likely to grow between 7% and 8%.

However, 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 hurt the company's profitability in the upcoming quarters.

Earnings Whispers

Our proven model does not conclusively show that Canadian Pacific Railway is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.

Zacks ESP : Canadian Pacific Railway has an earnings ESP of -3.39%. This is because the Most Accurate estimate stands at $1.71 while the Zacks Consensus Estimate is pegged higher at $1.77.

Zacks Rank : Canadian Pacific Railway's Zacks Rank #3 increases the predictive power of ESP. Nevertheless, we need to have a positive ESP to be confident of an earnings surprise.

Note that we caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies to consider instead as our model shows these have the right combination of elements to post an earnings beat this quarter:

Ryder System, Inc. R has an earnings ESP of +3.96% and a Zacks Rank #2.

Virgin America Inc. VA has an earnings ESP of +7.14% and carries a Zacks Rank #3.

United Continental Holdings, Inc. UAL has an earnings ESP of +4.29% and a Zacks Rank #3.

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RYDER SYS (R): Free Stock Analysis Report

UNITED CONT HLD (UAL): Free Stock Analysis Report

CDN PAC RLWY (CP): Free Stock Analysis Report

VIRGIN AMERICA (VA): 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.

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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