20 May

What to Expect from Canadian Pacific Stock

WRITTEN BY Anirudha Bhagat

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.

What to Expect from Canadian Pacific Stock

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.

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