Strong upside potential
Analysts polled by Reuters see massive upside potential in Canadian Pacific (CP) stock over the next year. Analysts covering the stock have given it a consensus ~1.87 rating and a consensus “buy” recommendation.
Seven of the 23 analysts tracking CP have given it “strong buy” recommendations, 12 have given it a “buy” recommendation, and the remaining four analysts say to “hold” it. Wall Street analysts are expecting a robust double-digit surge in its stock price. Analysts’ average target price of $312.33 represents a potential upside of 36.6% over the next year.
Analysts seem to be optimistic about CP’s future quarterly performance as the company is among the very few Class I railroad companies that have registered rail traffic growth this year so far. Higher rail traffic volume is anticipated to drive the company’s top-line and bottom-line results in fiscal 2019. Wall Street analysts estimate CP’s revenues and earnings for the current year to grow 8% and 13.2%, respectively, YoY.
CP’s overall rail traffic volume in the first 19 weeks of 2019 has increased by 0.5% YoY to 967,376 railcars, containers, and trailers. Other class I railroad companies including Norfolk Southern (NSC), CSX (CSX), and Union Pacific (UNP) have registered volume declines of 0.3%, 0.9%, and 1.4%, respectively, during the same timeframe. The largest Canadian railroad company, Canadian National Railway (CNI), has recorded the highest volume gain of 1.3%.
Peers’ target prices
Analysts have a different opinion on the majority of CP’s peers. They have given “buy” ratings to most Class I railroad companies but don’t expect much upside in these companies’ stock prices in the next year. The target prices on CSX, NSC, and UNP reflect a potential return of a mere 4.4%, 5.4%, and 6.3%, respectively.
Further, analysts have provided a “hold” rating to CP’s archrival CNI. Also, the average target price of $126.26 on the stock represents a flat return over the next year.
To gain exposure to railroad companies, you can invest in the Industrial Select Sector SPDR ETF (XLI). The ETF has allocated 17.7% of its fund in the freight and logistics services industry and has returned 16.2% so far this year, outperforming the 10.4% gain in the Dow Jones Industrial Average.