Yahoo Finance Here's Why You Should Retain Canadian Pacific (CP) Stock Now
Canadian Pacific Railway Limited CP is benefiting from an uptick in freight revenues which is expected to continue. However, escalated fuel costs, a primary headwind, are limiting its bottom-line growth.
Factors Favoring CP
With gradual recovery in freight-market conditions, freight revenues are increasing. It rose 21% year over year in fourth-quarter 2022 and contributed 98% to Canadian Pacific's top line.
In full-year 2022, freight revenues increased 10% despite headwinds like supply-chain woes. The upside was driven by increased freight revenues at key sub-groups like Grain (up 5%), Potash (up 25%), Forest products (up 16%), Metals, minerals and consumer products (up 21%), Automotive (up 16%) and Intermodal (up 30%).
Revenues at Fertilizers and sulfur sub-segment were up 9% year over year. In 2022, total freight revenues per revenue ton-miles rose 11%. Total freight revenues per carload increased 9% year over year.
We are encouraged by the company’s decision to pay dividends even in the current uncertain scenario. In 2022, CP shelled out dividends worth C$707 million, up 39.4% year over year.
Key Risks
Escalating fuel costs pose a threat to the company’s bottom line. Oil price is moving north, primarily because of supply concerns stemming from Russia-Ukraine war.
Notably, the railroad operator’s total operating expenses increased 9% to C$4,789 year over year in 2021, due to a 31% escalation in fuel costs. With increasing fuel costs operating expenses were high (up 15%) in 2022 as well. CP’s debt load is bothersome too.
Zacks Rank & Key Picks
Canadian Pacific currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Transportation sector are American Airlines AAL and Alaska Air Group ALK, both carrying a Zacks Rank #2 (Buy), presently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
American Airlines is being aided by the improved air-travel-demand scenario. Operating revenues in fourth-quarter 2022 increased 39.3% year over year. Buoyant air-travel demand is also reflected by a 16.6% increase of total operating revenues from fourth-quarter 2019 (pre-COVID-19) levels despite 6.1% lower capacity.
Driven by soaring demand on healthy bookings, management expects total unit revenues in the first quarter of 2023 to be roughly 24-27% higher than the level recorded in first-quarter 2022. The AAL stock has evidenced the Zacks Consensus Estimate for first-quarter 2023 earnings being revised upward by 100% in the past 60 days.
Alaska Air reported better-than-expected earnings per share in fourth-quarter 2022, driven by upbeat air-travel demand and favorable pricing.
Alaska Air expects to boost its fleet and workforce in 2023 to meet the anticipated high demand. ALK expects first-quarter 2023 total revenues to increase 29-32% from the first-quarter 2022 actuals. The Zacks Consensus Estimate for ALK’s current-year earnings has improved 12.4% over the past 60 days.
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Canadian Pacific Railway Limited (CP) : Free Stock Analysis Report
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