Canadian Pacific Railway
Canadian Pacific Railway (CP) is the second-largest railroad company in Canada. All eyes have been on the company over the last few months. It’s shown strong growth in YoY (year-over-year) freight volumes in recent quarters, and it’s been giving a tough fight to Canada’s largest railroad company, Canadian National Railway (CNI).
In August 2017, CP started a direct rail transport service from Vancouver to Detroit. This service benefited a transload facility in Vancouver and a live-lift operation at Portal, North Dakota, which helped to accelerate CP’s cross-border volumes. Note that these volumes constitute 30% of the company’s traffic mix.
Canadian Pacific Railway has a consensus rating of 2.12, implying a “buy” recommendation on its stock. Of the 25 analysts covering the stock, five (20%) have given it “strong buy” recommendations. Prior to the release of its 4Q17 earnings, six analysts called the stock a “strong buy.” Twelve analysts (48%) have given CP “buy” recommendations, eight (32%) have given it “hold” recommendations, and none have given it “sell” recommendations.
The company has a current 12-month price target of 245.3 Canadian dollars per share. Based on CP’s closing price of $233.4 on January 19, 2018, this target translates to a return potential of 5.1% over the next 12 months. In the last year, CP has returned 15.8% to stockholders. Let’s take a look at its peers’ 12-month price targets and return potentials.
- Rival Canadian National Railway has a price target of 110.6 Canadian dollars with a return potential of 9.5%.
- CSX (CSX) has a price target of $63.5 with a return potential of 10.5%.
- Kansas City Southern (KSU) has a price target of $119.1 with a return potential of 8.3%.
- Union Pacific (UNP) has a price target of $142.5 with a return potential of 0.9%.
- Genesee & Wyoming (GWR) has a price target of $88.6 with a return potential of 8.2%.
Major railroad and airline companies make up 6.2% and 5%, respectively, of the portfolio holdings of the iShares US Industrials ETF (IYJ).
Why analysts are saying “buy”
With oil prices heading north, Canadian Pacific Railway’s crude-by-rail business holds potential. With more oil rigs working across the United States and Canada, pipeline capacity should tighten further, pushing the volumes of energy-, chemical-, and plastic-related commodities in the coming quarters.
Global economic growth has shown momentum recently. Asia contributes the highest amount (32%) of Canadian Pacific’s traffic mix. Asian economies are doing well, which should act as a tailwind for the company’s intermodal business in 2018.
In the next and final article, we’ll value Canadian Pacific along with major US railroad companies.