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Canadian Pacific Railway’s Returns in 2017

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Dec. 4 2020, Updated 10:52 a.m. ET

Canadian Pacific’s outlook

Investors should note that after the recent 3Q17 earnings, Canadian Pacific Railway (CP) was the only railroad to revise its outlook upward. Among US Class I railroads (IYJ), CP was the only railroad with a positive outlook for the next few quarters. The company expects its net earnings to grow in double digits, by 12.6% over the next few years. The 3Q17 freight volumes of the company also corroborate its outlook. On the other hand, CP’s free cash flows are expected to grow at a higher pace than the peer group.

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Recently, the Canadian dollar has fallen. It stabilized below the $80.0 mark in October. With the US Federal Reserve expected to raise interests rate at its December meeting, the Canadian dollar has further scope to fall. If this fall happens, then exporters in Canada will be in a beneficiary position, which, in turn, should make room for higher grain exports from Canada. Canadian railroads like Canadian Pacific Railway and Canadian National Railway (CNI) should see higher volumes going forward.

Stock price performance

Canadian Pacific Railway’s 52-week high was $179.2 per share. The company is trading close to its 52-week high. In the last year, CP returned 19.3% to investors, whereas its competitor CNI delivered 23.6%. After 3Q17 earnings, railroad stocks have slightly nosedived due to pricing concerns. Compare the returns from CP’s peer group in the last year:

  • Norfolk Southern (NSC): up 25%
  • CSX Corporation (CSX): up 50%
  • Union Pacific (UNP): up 18%
  • Kansas City Southern (KSU): up 21%
  • Genesee & Wyoming (GWR): down 3.6%

Conclusion

Canadian Pacific Railway’s dividend payout has fallen considerably over the last couple of years. We believe CP might slow its dividend growth due to bright business prospects. As a result, the dividend yield might not look attractive, but investors could expect reasonable capital appreciation in CP stock.

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