On Nov 27, we issued an updated research report on Canadian Pacific Railway Limited CP.
The company posted positive earnings surprises in three of the four quarters last year, with an average beat of 1.14%. Meanwhile, in the third quarter of 2015, Canadian Pacific’s bottom line outpaced the Zacks Consensus Estimate while the top line missed the same.
In the third quarter, Canadian Pacific witnessed a record improvement of operating income 21.3% year over year. Operating ratio (defined as operating expenses as a percentage of revenues) improved a whopping 290 basis points year over year to 59.9% on continued focus on asset efficiency, safety measures and productivity improvement.
Of late, Canadian Pacific has been eyeing a merger with Norfolk Southern Corporation NSC with an aim to create over 33,700 miles of transcontinental track, thus improving connectivity between three major tidewater transport hubs.
However, uncertainties surrounding the coal market have been a major concern for Canadian Pacific. Further, lower coal shipments will mar the gains from other products lines, thus affecting revenues.
In the third quarter of 2015, carloads (volume) decreased 3% year over year and revenue ton-miles also fell 4% year over year. Moreover, the company's decision to trim its workforce by about 4% to improve efficiency is alarming.
Meanwhile, Canadian Pacific ended collaboration talks with CSX Corp. CSX and plans no further discussions on it. This has dealt a major blow to the company as it faces significant competition in the freight transportation market in Canada and the U.S., from other railway, trucking and barge companies.
Canadian National currently has a Zacks Rank #3 (Hold). A better-ranked stock in this space is USD Partners LP USDP with a Zacks Rank #1 (Strong Buy).
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